Mac Pro 2009 : Expect delays and more expensive!

[imacdaddy]

I'm just drawing together my own market observations that I would like to share. Just my 2 cents.

I sense a lot of excitement and high expectation from people's response on the next Mac Pro. Although, I think the majority of people are going to be real upset after learning about further delays and the price for the next MP.

IMHO, I expect the next MP to come 2H 2009 and base config will be 10-15% more than the base price of the current MP and expect 15-20% increase on the higher end models ie > 3.0GHz. Here's why I think and mainly has to do with the Global Economy / Financial Crisis. (Yeah...those dreaded words we keep hearing about.)

First, looking at Intel's Q4 '08 earnings report, their Revenue and Net Income has dropped significantly YoY and Gross margin was lower vs Q3 '08. They say GM lower due to primarily (1) higher factory underutilisation charges and (2) higher inventory write-offs. This is a good indication of Cost of Sales from overseas factories ie. Israel, China, Malaysia etc. are high and also no mention about Currency fluctuation against the USD ie MYR vs USD in the past year effectively increasing the cost per chip. Then Higher inventory due to slow global sales. Higher inventory is not only a key factor for Intel, but for pc/notebook vendors ie Dell, IBM and also Apple. Lets not forget the boutique vendors and HW wholesellers / retail. What I mean by "factor" is these vendor will continue to clear out as much inventory as possible before investing on new chipsets and next gen CPUs. We should expect to see more of the same technology for the next while as consumer spending tightens. Thus expect delays.

Secondly, investing. Current uncertainty in global economic conditions and tightening of credit market makes it particularly difficult to get financing. PC/Notebook makers will have great difficulty in getting financing to for new investments ie. new chipset / and new line of CPUs. This will heavily impact on rolling out new products to the market and impacting Intel (already evident in their earnings report regarding slow global sales). If no/limited financing is available, then they need to get financing from their own Cash Flows which may be tough for some companies needing to pay off dividends or debt.

Third, supply and demand. This surplus already has Intel writing-off their inventory. I haven't looked at Dell's or IBM's financials and Apple's earnings come out next week, but I'm sure it carries the same kind of tone. How is this going to affect the next gen CPUs / chipset? Produce less. Producing less chips with the same running cost means higher unit cost per chip. From Intel's earnings report "Gross Margin: The percentage is expected to decline to the low 40s primarily due to higher underutilization charges and 32nm start-up costs. Gross margin is subject to changes in demand levels and pricing that could impact inventory write-offs, mix and unit costs, and potentially create several additional points of margin variability". As you can see mentioned the 32nm i7 CPU. Either they have already started manufacturing or the manufacturing process has slowed either from (1) cost cutting measures (2) low demand (3) delays from financing for start up costs. We just don't know but I can safely assume that there will be delays. Oh, regarding their actions to mitigate declining Gross Margins, simply put...increase price and cut costs.

So is the next MP really going to come in 2H 2009 (Late 2009 Mac Pro ) and priced 10-20% higher than current MP? IMHO yes and yes. The delays and price are justified from what I said above but I also fail to mention the cost for the Buffered 1333MHz ECC DDR3 RAM the next MP needs. If Intel is going to moderate supplies to meet low market demands for Nehalem, we can safely assume RAM makers will meet that as well. The control of demand will be higher and supplies will be limited thus the RAM prices should increase from where they are today. RAM prices are historically cheap today perhaps from over supply and clearing of inventory but it won't be long until prices go up again. So now the question is how Apply will maintain a good profit margin on the next MP without burning a hole through our wallets? It will be quite tough to keep it at the current pricing levels though and the global economy / financial crisis is here to stay for quite a long while.

Thanks.

 

[Umbongo]

You'll probably get jumped on for this thread as such things are already being disucssed in other threads.

Specifically we already know Intel's pricing for the Xeon processors. They are more expensive therefore new Mac Pros will be more expensive. But we knew this in September, it's nothing new. Perhaps Intel will change the pricing, but no one has denied the pricing out there is incorrect. It has nothing to do with the current state of the economy, it's just the cost of new technology.

As for a 2H release this seems very unlikely, hardware should be ready before June and it will probably be a case of waiting on Snow Leopard to ship before release.

Memory appears it will be no more expensive than FB-DIMMs were when Mac Pros were launched in the past.

 

[matt4077]

Disagree. CPU production was slated to start this month. It would not make any sense to delay it for financial reasons, as the major investments have already been made last year. And even if Intel may be hurting, they're still financially strong, so they don't have to optimize and downsize everything for some short-term benefits.

Regarding prices, it's the demand that's falling right now, which should reduce prices if anything. Just look at oil and other natural resources. Falling costs for raw materials, energy and labor might even reduce manufacturing costs.

Your ideas remind me of that old soviet joke: "We're only selling half of what we expected, so we have to double our prices".

 

[gotzero]

Regarding prices, it's the demand that's falling right now, which should reduce prices if anything. Just look at oil and other natural resources. Falling costs for raw materials, energy and labor might even reduce manufacturing costs.

Your ideas remind me of that old soviet joke: "We're only selling half of what we expected, so we have to double our prices".

It is a lot different for things like processors that lose their value quickly if stored and new ones come out. A year long contango of Xeons would probably not work out so well...

 

[Tallest Skil]

I made a thread exactly like this yesterday... why didn't you search?

I don't expect any delays, it won't be using 32nm chips, and it won't be using FB-DIMMs. You should read my thread for more information.

 

[Toronto Mike]

I'm just drawing together my own market observations that I would like to share. Just my 2 cents.

I sense a lot of excitement and high expectation from people's response on the next Mac Pro. Although, I think the majority of people are going to be real upset after learning about further delays and the price for the next MP.

IMHO, I expect the next MP to come 2H 2009 and base config will be 10-15% more than the base price of the current MP and expect 15-20% increase on the higher end models ie > 3.0GHz. Here's why I think and mainly has to do with the Global Economy / Financial Crisis. (Yeah...those dreaded words we keep hearing about.)

First, looking at Intel's Q4 '08 earnings report, their Revenue and Net Income has dropped significantly YoY and Gross margin was lower vs Q3 '08. They say GM lower due to primarily (1) higher factory underutilisation charges and (2) higher inventory write-offs. This is a good indication of Cost of Sales from overseas factories ie. Israel, China, Malaysia etc. are high and also no mention about Currency fluctuation against the USD ie MYR vs USD in the past year effectively increasing the cost per chip. Then Higher inventory due to slow global sales. Higher inventory is not only a key factor for Intel, but for pc/notebook vendors ie Dell, IBM and also Apple. Lets not forget the boutique vendors and HW wholesellers / retail. What I mean by "factor" is these vendor will continue to clear out as much inventory as possible before investing on new chipsets and next gen CPUs. We should expect to see more of the same technology for the next while as consumer spending tightens. Thus expect delays.

Secondly, investing. Current uncertainty in global economic conditions and tightening of credit market makes it particularly difficult to get financing. PC/Notebook makers will have great difficulty in getting financing to for new investments ie. new chipset / and new line of CPUs. This will heavily impact on rolling out new products to the market and impacting Intel (already evident in their earnings report regarding slow global sales). If no/limited financing is available, then they need to get financing from their own Cash Flows which may be tough for some companies needing to pay off dividends or debt.

Third, supply and demand. This surplus already has Intel writing-off their inventory. I haven't looked at Dell's or IBM's financials and Apple's earnings come out next week, but I'm sure it carries the same kind of tone. How is this going to affect the next gen CPUs / chipset? Produce less. Producing less chips with the same running cost means higher unit cost per chip. From Intel's earnings report "Gross Margin: The percentage is expected to decline to the low 40s primarily due to higher underutilization charges and 32nm start-up costs. Gross margin is subject to changes in demand levels and pricing that could impact inventory write-offs, mix and unit costs, and potentially create several additional points of margin variability". As you can see mentioned the 32nm i7 CPU. Either they have already started manufacturing or the manufacturing process has slowed either from (1) cost cutting measures (2) low demand (3) delays from financing for start up costs. We just don't know but I can safely assume that there will be delays. Oh, regarding their actions to mitigate declining Gross Margins, simply put...increase price and cut costs.

So is the next MP really going to come in 2H 2009 (Late 2009 Mac Pro ) and priced 10-20% higher than current MP? IMHO yes and yes. The delays and price are justified from what I said above but I also fail to mention the cost for the Buffered 1333MHz ECC DDR3 RAM the next MP needs. If Intel is going to moderate supplies to meet low market demands for Nehalem, we can safely assume RAM makers will meet that as well. The control of demand will be higher and supplies will be limited thus the RAM prices should increase from where they are today. RAM prices are historically cheap today perhaps from over supply and clearing of inventory but it won't be long until prices go up again. So now the question is how Apply will maintain a good profit margin on the next MP without burning a hole through our wallets? It will be quite tough to keep it at the current pricing levels though and the global economy / financial crisis is here to stay for quite a long while.

Thanks.

Thanks for the detailed assessment of this issue imacdaddy.

I think what you have written applies nicely to the overall economic picture that we are entering for many years to come. I think it will be a shock for many to realize that pace of new products in the future will grind to a trickle. I'm not technically knowledgeable in these matters, however from the business scenario that you have just outlined, I would expect this current generation Mac Pro, and the soon to be released model, will stand for a long time as the cutting edge. Who will be ab;le to afford to upgrade from this point, and who will need to - given the economic position that many clients will be in. As an example - if the printing industry in this economic enviroment is pressed to the wall, they are going to keep what current printing technology they have going for as long as possible. The current Mac Pro machines can service this market easily with the current software. What real incentive is there for a professional graphic person, struggling within the same enviroment, to spend big money on upgrading their machines and software from this point forward?

What could this mean?

You cannot go wrong buying what is current. These macs would service most people well for a long time. The manufactures will be hardpressed in this economy to remotely make the pace of tecnological change that they've done in the last 20 years. The software companies will be forced to rethink the expansion of bloated code, streamline it more efficiently - or they won't make sales - and this would only serve to help prolong the useful life of the current machines.

Mike

 

[numbersyx]

Nice post iMacDaddy.

I think the real factor is what you refer to in your last line i.e. the global economy downturn. The question is how Apple can charge more when people are spending less. I don't think they can which is why they will sacrifice some of the quality to keep the price affordable.

 

[Tallest Skil]

I don't think they can which is why they will sacrifice some of the quality to keep the price affordable.

Steve Jobs: We don't know how to make a $500 computer that doesn't suck.

Apple will NEVER sacrifice quality because they don't give a crap if you can't afford it. This is a workstation computer; the consumer isn't supposed to be able to afford it.

They will always have their sustaining market, so they'll up the price in accordance with the jump in 45nm Gainestown chip prices.

 

[Toronto Mike]

Nice post iMacDaddy.

I think the real factor is what you refer to in your last line i.e. the global economy downturn. The question is how Apple can charge more when people are spending less. I don't think they can which is why they will sacrifice some of the quality to keep the price affordable.

http://www.marketskeptics.com/2009/01/incomplete-draft-hyperinflation-in.html

Above is an interesting link that will add fuel to the fire of this discussion. It revolves around the issue of the price we will soon pay for goods in terms of US Dollars. If this above assessment of where we are heading relative to what is taking place in China - we could see a Mac Pro priced beyond what is affordable for anyone in North America. As a Canadian, I'm well aware of how the US dollar affects the prices we must pay. Ask a South African what they pay for a Mac Pro. Say it cannot happen here - read the article.

Mike

ps You can skip the middle part of the article down to the bottom for the conclusion to get the jest of what he is saying - then read the whole article if it interests you. I think this stands a good chance of taking place.

What does this mean?

Buy your Mac Pro soon if you really must have it before the train leaves the station.

 

[jjahshik32]

wait, so is this thread to make yourself feel better about your purchase??

Seeing as those happy faces everytime you mention that it's either more expensive or will be delayed until end of this year?

 

[Tallest Skil]

wait, so is this thread to make yourself feel better about your purchase??

Seeing as those happy faces everytime you mention that it's either more expensive or will be delayed until end of this year?

You know, I do believe that it is...

 

[imacdaddy]

It has nothing to do with the current state of the economy, it's just the cost of new technology.

In today's situation, it has everything to do with the state of the economy and the depreciation of the USD. Especially now that Intel and PC makers have fabrication / assembly plants around the World. Also new technology does not necessarily mean higher cost. If the cost of manufacturing new tech is low, cost per unit can be low. I'm just reiterating the fact that expectation of price for the new chips are going to be high...maybe higher than previously announced which was just an estimated cost before the financial turmoil.

Disagree. CPU production was slated to start this month. It would not make any sense to delay it for financial reasons, as the major investments have already been made last year. And even if Intel may be hurting, they're still financially strong, so they don't have to optimize and downsize everything for some short-term benefits.

Regarding prices, it's the demand that's falling right now, which should reduce prices if anything. Just look at oil and other natural resources. Falling costs for raw materials, energy and labor might even reduce manufacturing costs.

If CPU production was slated to start in Nov 08 and now this month, what was the delay? As stated, Higher Factory Underutilisation Charges and higher start-up costs for i7 CPU which includes 32nm and 45nm. They mentioned only 32nm in the earnings report as this is more for mainstream desktop/notebook computers and what the analysts are familiar with.

Prices are falling now due to demand on current stock not for future supplies. If PC vendors are not going to place their orders at the expected supply for the new chips, Intel can cut/delay production of new chips. Thus, preventing more Inventory Write-offs. Although commodities / labour costs are falling, you haven't account for inflation.

It is a lot different for things like processors that lose their value quickly if stored and new ones come out. A year long contango of Xeons would probably not work out so well...

Totally agree. Why manufacture something new when they have written-off inventory of unsold chips.

I made a thread exactly like this yesterday... why didn't you search?

I don't expect any delays, it won't be using 32nm chips, and it won't be using FB-DIMMs. You should read my thread for more information.

I have read your post yesterday and is a good post. I started to reply but as you can see, it got quite long and I thought it deserved a new post since I'm coming from an economic point of view not from a hardware / laundry wish list of what config the next MP would be.

What real incentive is there for a professional graphic person, struggling within the same enviroment, to spend big money on upgrading their machines and software from this point forward?

What could this mean?

You cannot go wrong buying what is current. These macs would service most people well for a long time. The manufactures will be hardpressed in this economy to remotely make the pace of tecnological change that they've done in the last 20 years. The software companies will be forced to rethink the expansion of bloated code, streamline it more efficiently - or they won't make sales - and this would only serve to help prolong the useful life of the current machines.

Mike

This is exactly what we are seeing today with drop in sales for desktops and workstations. When Windows 7 and Snow Leopard comes out this year, you're not going to find consumers rushing out to buy new tech gear to support the new OS. These new OSes are going to run more efficiently and faster on current hardware. It is evident that over the past 12 months, pc/notebooks sales were high and the upgrade path now is buying RAM/HD/GPU/CPU of today as prices are so cheap (over supply). Benchmarks already show that the new OSes run faster on today's config than current OS versions be it Vista/XP or Leopard.

http://www.marketskeptics.com/2009/01/incomplete-draft-hyperinflation-in.html

Above is an interesting link that will add fuel to the fire of this discussion. It revolves around the issue of the price we will soon pay for goods in terms of US Dollars. If this above assessment of where we are heading relative to what is taking place in China - we could see a Mac Pro priced beyond what is affordable for anyone in North America. As a Canadian, I'm well aware of how the US dollar affects the prices we must pay.

Thanks Toronto Mike for the link...a very good read. As a Canadian myself and an expat working in Hong Kong we are very aware of the economic development of China and impact on global trade. That article is very true and realistic and the analysts here shares the same sentiments as the writer.

The majority here don't see the BIG picture of the effects of the financial crisis and credit squeeze. The company's bottom line and Cash Flows are going to be critical in the next 18 months or more. The way of doing business has already changed and if the Board / Shareholders say we need to cut costs, lower production and keep inventory low to maintain their top line, they will do it in a heartbeat even if it is to survive short term. It's premature to look long term in todays market.

I'm just saying expect delays and to pay higher for the next MP. Don't flame Apple for delaying it and don't start crying when they announce at a higher price point than what was expected. It's just typical here though I did the same before I bought my Early 2008 MP. Call me a hypocrite.

 

[numbersyx]

Steve Jobs: We don't know how to make a $500 computer that doesn't suck.

Apple will NEVER sacrifice quality because they don't give a crap if you can't afford it. This is a workstation computer; the consumer isn't supposed to be able to afford it.

They will always have their sustaining market, so they'll up the price in accordance with the jump in 45nm Gainestown chip prices.

The problem for them is how do you increase the price in a recession. If people are reluctant to spend, increasing prices is going to make them even more reluctant. Apple will realise this...

 

[Tallest Skil]

The problem for them is how do you increase the price in a recession. If people are reluctant to spend, increasing prices is going to make them even more reluctant. Apple will realise this...

And sell at a loss, lose money, fire people, and keep the cycle going?

Apple. Doesn't. Care.

And it's as simple as that. They'll do whatever they want with prices. What other company has 25 billion to sit on right now? They can wait it out.

 

[imacdaddy]

wait, so is this thread to make yourself feel better about your purchase??

Seeing as those happy faces everytime you mention that it's either more expensive or will be delayed until end of this year?

Hahaha, no very untrue. I just made a stick out tongue as I was being sarcastic on naming the next MP as Late 2009. What happy faces did you see?

 

[Tallest Skil]

Hahaha, no very untrue. I just made a stick out tongue as I was being sarcastic on naming the next MP as Late 2009. What happy faces did you see?

The problem comes in the fact that every emoticon we have here is smiling.

Maybe I want a line-mouth guy. What do I do? I don't; that's what I do.

 

[imacdaddy]

And sell at a loss, lose money, fire people, and keep the cycle going?

Apple. Doesn't. Care.

And it's as simple as that. They'll do whatever they want with prices. What other company has 25 billion to sit on right now? They can wait it out.

Agreed. They are not Sony (ie PS3 division) selling at a loss. Apple are so cash rich they can do as they please.

They can sit on the current MP as long as they want at the current prices and as long as the component prices are dropping, they can continue to make reasonable margins. Delay is good for them...perhaps not for you?

 

[kolax]

And sell at a loss, lose money, fire people, and keep the cycle going?

Apple. Doesn't. Care.

And it's as simple as that. They'll do whatever they want with prices. What other company has 25 billion to sit on right now? They can wait it out.

Selling at loss? They could lower their prices much more and still make fair bit profit.

 

[Tallest Skil]

Selling at loss? They could lower their prices much more and still make fair bit profit.

But not their normal profit, making the shareholders mad, driving stock down.

It's idiotic.

I still don't think they'll LOWER prices when the next chips cost more.

 

[iMacmatician]

I don't expect any delays,

If you mean delays from June/WWDC 2009 then I agree.

 

[Tallest Skil]

If you mean delays from June/WWDC 2009 then I agree.

Yeah, that's what I mean at this point...

 

[nanofrog]

Steve Jobs: We don't know how to make a $500 computer that doesn't suck.

Well, they do have Mac mini.

Apple will NEVER sacrifice quality because they don't give a crap if you can't afford it. This is a workstation computer; the consumer isn't supposed to be able to afford it.

They do aim at the upper end of the market, but to me, the quality has dropped over time. Every vendor's systems have. Increased incidences of issues, and DOA units shipped. It has to do with the increase in complexity of the systems, and the fact design and production have all been outsourced.

They only assemble a bunch of parts, rather than actually design & manufacture each part. So they aren't in the loop, and are unable to monitor QC through the various stages during design, manufacture, and assembly. Even Apple has fallen victim to this. Simple greed, IMO.

They will always have their sustaining market, so they'll up the price in accordance with the jump in 45nm Gainestown chip prices.

Yes, the price will almost certainly increase in this case, as the parts costs have increased. What will be of greater importance, is how will other vendors respond?

It will come down to how the Nehalem Mac Pro stacks up against the competition. If the current trend continues, the MP will be less expensive than the competition. But, if the competition gets desperate, the cost differences may be leveled to near equality, and Apple may not fair so well in this case, as their growth may be halted.

In the end, Apple is a company, and answers to its shareholders. If their returns drop, they demand changes. So who knows? Anything is technically possible.

 

[imacdaddy]

The problem for them is how do you increase the price in a recession. If people are reluctant to spend, increasing prices is going to make them even more reluctant. Apple will realise this...

Yes true but sad. True because price increase hurts business and consumers during a recession. Sad because there's no arguing that components are going to cost more. So what can you do?

If I really need to bring the next MP to market, I would focus on one configuration 2.66GHz? (low end MP) for the first release and delay the high end version until later when/if the economy pics up? That way I wont get burned with writing off stock which I can't sell. Because I'm focusing on only selling 2.66GHz, I can buy at higher quantities from Intel for lower tier pricing. But what do I know, I'm not a business person.

 

[numbersyx]

And sell at a loss, lose money, fire people, and keep the cycle going?

Apple. Doesn't. Care.

And it's as simple as that. They'll do whatever they want with prices. What other company has 25 billion to sit on right now? They can wait it out.

... and make a loss... because no one's buying?????

 

[Tallest Skil]

... and make a loss... because no one's buying?????

$3,000 base isn't that much more than it is now. $4,200 for the 3.2 model isn't bad, either.