Apple Unveils Updated MacBook Pros, My AAPL 4Q24 Estimates
Hello everyone. We are at that point of the week where some triage is needed. There is a lot of stuff unfolding and not enough time to cover it all. Big Tech earnings are now in full swing. We will discuss earnings from Apple competitors in due time. For now, our attention is needed elsewhere.
Programming Note. With Apple reporting FY4Q24 earnings on Thursday, there won’t be a daily update published Thursday. Instead, there will be a special edition Friday update that goes over my thoughts and reactions to Apple’s earnings.
Apple Earnings Preview. Yesterday’s update, which was sent out very early on Wednesday in the AM ET, went over the big picture heading into Apple's earnings on Thursday. The FY4Q24 expectations game is slightly biased to the upside for Apple. Compared to expectations facing Apple ahead of 3Q24 earnings, things are a tad tougher for Apple to surprise to the upside. However, the general framework still has an upward bias. Today’s discussion will continue my earnings preview so that we are fully prepared for tomorrow.
Updated MacBook Pros. For Day 3 of Apple’s Mac week, the company unveiled updated MacBook Pros and a M4 Max chip. Many of the broader points regarding Apple Intelligence and Mac strategy were discussed in the two most recent updates. There is no need to reiterate those points again with MacBook Pro. However, there are a few observations about the machines worth going over. We will quickly go over those (250-300 words) and then switch over to Apple’s earnings.
Financial Models Add-on. There are several updates to my iPhone, iPad, and Apple Watch installed base models coming down the pipeline. In looking over the models a few weeks ago, my preference ended up being to wait until we got closer to 4Q24 earnings to update all of the models at once. Accordingly, my updated installed base models, which influenced my 4Q24 estimates, will go live on Thursday for those members with the Financial Models add-on. In addition, my updated Apple earnings model will be uploaded to the add-on in the AM. As a reminder to those of you with the add-on, to access the financial models, log into the Above Avalon payer portal (here) and once signed in you will see the "Digital Package" tab which will bring you to your personalized download page. More information on the Financial Models add-on is available here.
Apple Unveils Updated MacBook Pros
On Wednesday, Apple unveiled updated MacBook Pros and a M4 Max chip. Along with a press release, Apple taped a 14-minute presentation (available here). For those of you who have watched the iMac and Mac mini presentations, the MacBook Pro presentation relied on the same general playbook. The MacBook Pro update was anchored by Apple Intelligence and Apple Silicon. The relevant presentation sections were tailored to show off workflows that would likely be given to MacBook Pro.
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The State of the Mac (Above Avalon Report)
An examination of Apple’s oldest product category.
Written by Neil Cybart - November 21st, 2023
Three years into the Mac’s Apple Silicon transition, the product category has never been stronger. It’s a stark difference from where the Mac was a decade ago. And yet, Mac sales are back to the same level as they were pre-Apple Silicon. This report reflects on where the Mac has come from and where it is going as Apple heads into spatial computing.
The Mac’s Past
The 2010s represented a complicated decade for the Mac. While Apple never lost its optimistic and upbeat tone with the Mac, the product category experienced a few highs but also the lowest of lows.
The best way of describing Apple’s old approach with the Mac (pre-2017) was aggressiveness in getting users to shift to mobile devices. (For this Report, we won’t go over Mac strategy pre-iPhone).
Apple was seeing unprecedented demand for iPhone and iPad with strong installed base growth. Even though Apple was continuing to add new users to the Mac installed base, the rates were not at the same level as what was unfolding with its mobile siblings.
In the early and mid 2010s, a going theory on display with Apple’s product development strategy was that many Mac users would eventually migrate to iPad (and iPhone). These Mac users were not developers and had no need for pro Mac software. Instead, they were sticking with the Mac for other reasons, including familiarity. Based on subsequent Apple disclosure, parts of that theory proved correct. In early 2017, Apple said 70% to 85% of Mac users weren’t relying on professional Mac software. This group was thought to be a prime target market for the iPad.
The implications of this Mac mindset went far. As workflows migrated from the Mac to iPad, the Mac line would be winnowed down to essentially three models: the MacBook, iMac, and Mac Pro. At least, that was the theory. Although this goal wasn’t directly telegraphed in ad campaigns or commercials, Apple’s actions with the Mac spoke volumes. The Mac mini went years without an update. The now infamous butterfly keyboard debacle was ultimately Apple trying to make MacBooks as thin as possible (keys stability was positioned as another selling point). Other new ideas included the Touch Bar and the 12-inch MacBook form factor. The takeaway wasn’t that Apple gave up with the Mac or was losing interest (far from it). Some of the Mac features were clearly inspired by the success seen with Apple's mobile devices. Instead, Apple appeared to be struggling with understanding what users, especially those with pro workflows, were looking for in a Mac.
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The Mac's Graduation
The iPad is seeing more than twice the number of new users as the Mac. Within two years, the number of people wearing an Apple Watch will equal the number of people owning a Mac. Approximately 90% of Apple users don’t use, and probably never will use, a Mac.
It’s tempting to look at the preceding statements and think that the Mac has lost its luster. However, 2020 was a record fiscal year for the Mac in terms of revenue and the number of new users was near a record high. How does one reconcile such different worlds? The Mac is seeing momentum by being true to itself instead of trying to be something that it’s not. With a transition to Apple Silicon, the product category is now benefiting from lessons Apple learned from more popular devices aimed at the mass market.
Apple Silicon Transition
This past June at WWDC, Apple unveiled the Mac’s multi-year transition to Apple Silicon. Last week, Apple’s “One More Thing” product event focused on the first wave of Mac hardware to take advantage of Apple Silicon. Three models saw updates:
13-inch MacBook Air
13-inch MacBook Pro
Mac mini
One of the more interesting takeaways from WWDC and last week’s event ended up being subtle. While Apple technically announced a Mac transition, the Mac ended up taking a back-row seat to the sheer power and capability found with Apple Silicon and Apple’s decade-long bet on designing its own chips.
A Graduation
The MacBook Air, Apple’s best-selling Mac, was included in the first wave of hardware transitioning to Apple Silicon. The well-known model had one of the more memorable unveilings in Apple history when it was pulled out of a manila envelope by Steve Jobs onstage at Macworld 2008.
The MacBook Air’s design was industry leading. Jony Ive and Apple’s industrial design group had utilized a new unibody architecture that was eventually brought to the entire Mac portable line. Twelve years later, the MacBook Air still feels refreshing.
While the MacBook Air’s thinness was the top feature in 2008, a MacBook Air powered by Apple Silicon is all about performance, longer battery life, and quietness. (The 12-inch MacBook that Apple unveiled in 2015 and discontinued four years later was ahead of its time.)
It is telling that Apple didn’t see the need to change the MacBook Air’s design despite the fact that it is being powered by Apple Silicon. This is evidence of the Apple Silicon transition being akin to the Mac graduating and entering a new phase in life.
A graduation is an acknowledgment of someone acquiring a certain amount of knowledge and experience. Such knowledge can then be used to solve future problems. A similar dynamic is found with Macs powered by Apple Silicon. The Mac now has a new toolset that it can rely on to tackle future problems.
Grand Unified Theory
Prior to this year’s WWDC, reaction in some tech circles was cool towards the idea of Apple transitioning the Mac to its own Silicon. Many were skeptical that Apple would want to face any risks and trouble that could be found with such a transition. Others figured the Mac wasn’t important enough to receive that kind of attention from Apple.
In reality, the Apple Silicon transition was always a question of when, not if. The transition would not only give Apple the kind of control over the Mac that it yearned for, but more importantly, Apple Silicon would open new doors to push the Mac forward in ways that simply weren’t possible with Intel.
With Apple Silicon, Apple took lessons learned from personal devices such as Apple Watches, iPhones, and iPads to help push less personal devices, like the Mac, forward. This is a core tenet of The Grand Unified Theory of Apple Products. We saw early iterations of this with Mac features such as the Touch Bar, Touch ID, and T1 / T2 chips. These additions were the clues that an eventual transition to Apple Silicon would take place.
What’s Next?
The Mac, having graduated thanks to Apple Silicon, is now in a much stronger position to navigate a world being overrun with iPhones, iPads, and an expanding line of wearable devices designed for different parts of the body (wrists, ears, and eventually eyes).
Based on my installed base estimates for various Apple product categories, as of the end of FY2020, it’s clear that the Mac hasn’t been for everyone:
There are 7x more people using iPhones than Macs. There are 2x more people using iPads than Macs. Some think that Apple Silicon will dramatically change these ratios by increasing the Mac’s addressable market. Caution is needed in running too far with such thinking.
The value found with Apple Silicon isn’t that it will turn the Mac into a fundamentally different product. We should not assume Macs will become touch-first devices. Apple already sells touch-first or touch-based computers; they are called iPhones and iPads.
For Apple, the goal isn’t to take fundamentally different product categories and form factors and converge them for no other reason than that they can. A far more challenging endeavor is to resist such calls from users, often the most loyal ones, and instead stay true to a form factor’s design.
When thinking about workflows, Apple’s iOS / iPadOS / macOS product lines are designed in such a way that some products do a better job of handling personal workflows than more demanding workflows. As shown in the following exhibit, macOS devices are designed to handle some of the most demanding workflows while iOS and iPadOS is geared toward handling more personal workflows. However, there is overlap between iPads running iPadOS and Mac portables running macOS when thinking about some workflows.
Since a MacBook Air and iPad Pro can handle some of the same workflows, some people think both devices will eventually merge into one another. The iPad Pro’s Magic Keyboard is positioned as a sign of this upcoming merge while touch-based Macs are said to be inevitable.
There are a few holes found in the logic of such thinking.
Even though Mac portables and iPads may handle many similar workflows, that doesn’t mean that both devices should lose their core identity. The iPad doesn’t move away from being a touch-based computer simply because a keyboard can be attached to it or an Apple Pencil can be used to take notes and sketch a drawing. A MacBook Pro doesn't embrace a touch-first interface just because Big Sur has similar elements to iOS and iPadOS.
Instead, we should expect Apple to take what makes the Mac special for 130 million people and accentuate those items, namely, a screen that tilts while always being attached to a dedicated keyboard. While both the screen and keyboard will likely see their fair share of changes in the future, including possibly sharing a foldable display, the dynamic found with using a keyboard permanently connected to a screen would remain.
While iPads would remain touch-first computers with a range of productivity accessories like dedicated keyboards, Macs powered by Apple Silicon could embrace multi-touch and foldable displays but in a dedicated area of the machine where one’s fingers are likely to always be found (think the area between the Touch Bar and the lower fifth of the screen). A good argument can be made that Apple should pursue flexible displays for Mac portables so that the entire area between the Touch Bar and vertical screen can be usable.
Such a product may seem underwhelming to some. The word “legacy” probably will come to mind for others. There is nothing inherently wrong with a product being classified as legacy as long as the product doesn’t jeopardize Apple’s ambition and efforts with new platforms and paradigm shifts. This risk was described in detail in the Above Avalon article titled “The Mac is Turning into Apple’s Achilles’ Heel.”
Apple management has spent the past few years trying to convince Mac users that the Mac’s future has never been brighter. Some pro users may end up disappointed with where Apple will, and won’t, take the Mac. However, it is a positive sign that Apple remains focused on pushing forward with new platforms aimed at lowering the barrier between technology and people while allowing the Mac to be true to itself.
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