Apple's gamble on the budget MacBook Neo is paying off and forcing rivals to rethink their offerings

Apple introduced the budget Neo laptop in March with a starting price of $599, which has since been raised to $699.

Ever conscious of its brand image, Apple has made a name for itself by offering premium products. That's why it was such a departure when the company announced its first budget laptop in March, the MacBook Neo.

Early results suggest the pivot has been a success. Apple $(AAPL)$ put up 29% revenue growth in its overall Mac business in the June quarter, easily beating analyst expectations with $10.4 billion in sales. While the company didn't break out sales of individual models, CEO Tim Cook called out the MacBook Pro and the MacBook Neo as standout contributors on Apple's earnings call.

"The performance of Mac is notable as the growth is not only strong relative to last quarter, but it is also strong during a period where many companies are struggling with personal-computer sales," D.A. Davidson analyst Gil Luria said in a note to clients.

See also: Supply-chain legend Tim Cook finally meets his match with Apple's memory crunch

As for the Neo, Luria told MarketWatch that Apple saw "a need to expand its addressable market and engage with younger consumers that were defaulting into Chromebooks and low-end PCs." Now, the company can leverage its brand reputation to become a significant player in this new market.

And the Neo isn't just an initial hit with individual consumers. The company noted traction with major school districts in just the first few months since the Neo's launch. In the last quarter, about half of the high-volume MacBook Neo purchases by U.S. education institutions displaced Windows and Chromebook devices, Cook said on the earnings call.

School-district purchases of MacBooks not only help Apple drive sales in the near term, but they also introduce young people to the company's products at an early age.

How the MacBook Neo dominates

To slash costs without sacrificing performance, Apple opted to use the same A18 Pro processor in the iPhone 16 to power the MacBook Neo. Apple positioned the product as an AI-forward productivity laptop for students and professionals.

"The MacBook Neo offers Apple a more affordable option without compromising the premium status of the MacBook Air and MacBook Pro," David Naranjo, associate director at Counterpoint Research, told MarketWatch.

The budget MacBook has faced such high global demand that the company can't manufacture enough. Cook assured investors on the earnings call that Apple is "continuing to work hard to meet demand."

Getting entry-level consumers into the Apple ecosystem could have wider-ranging benefits, according to Naranjo. "First-time Mac buyers may drive future revenue through services, accessories and additional devices."

Competitors respond

Before recent price increases, the MacBook Neo started at $599 for regular buyers and $499 for students - nearly half the price of Apple's cheapest model at the time. The release drove competitors like Dell Technologies $(DELL)$ and Acer (TW:2353) to quickly pivot the standards for their new budget-laptop lines to focus on superior productivity and design, in order to remain competitive.

"Competitors now focus on enhancing design, performance, battery life and AI features instead of relying solely on specifications and price," said Naranjo.

In May, Qualcomm $(QCOM)$ announced the Snapdragon C processor, an ultra-affordable chip made to rival Apple's A18 Pro and power laptops in the $300-plus range, to capture the entry-level consumer market.

One of the first models to deploy Qualcomm's new processor was the Acer Aspire Go 15 laptop in May, now starting at $469.99. Dell also fired back with the release of its XPS 13 in June, starting at $699 for regular consumers and $599 for students.

Google $(GOOGL)$ $(GOOG)$ is set to release its new AI-led Googlebook line this fall, with the potential to drive further competition with its Android and ChromeOS integration, Naranjo said. While the exact processor for the Googlebook isn't confirmed, the company faces pricing pressure from Apple and has said it is working with partners like Acer, Asus (TW:2357), Dell, HP $(HPQ)$ and Lenovo Group (HK:992) $(LNVGY)$ for the design.

Apple's future

Apple has since raised the MacBook Neo's price to $699 for general consumers and $599 for students, after an industrywide memory shortage drove up hardware costs. Apple's June-quarter earnings primarily reflected sales before the $100 price hike, and the numbers showed just how appealing the product was for price-conscious consumers.

Even with the price hike, "Apple is likely to maintain strong Mac sales, though matching the June quarter's 29% year-over-year growth will be challenging," Naranjo said.

At $599, the MacBook Neo was "highly disruptive," Naranjo noted. At $699, the Neo is still competitive - but Apple will have to demonstrate that its superior design and features justify the premium, he added.

D.A. Davidson's Luria agreed that Apple's strong global brand should still help it penetrate the crowded budget-laptop market well beyond the U.S.

-Julian Torres