By Andrew Donoghue, 19 October 2006 09:20
NEWS
Increasing component costs and pressure to cut its prices mean Apple's best bet for long-term success is to quit the hardware business and license the Mac to Dell, analyst house Gartner has claimed.
In a surprisingly ambitious report, called Apple Should License the Mac to Dell, Gartner says Apple should concentrate on what it does best - create software - and make use of Dell's production and distribution infrastructure.
The report said: "Apple should leverage its close relationship with Intel and team up with Intel's closest ally, Dell. We recognise that this move would surprise and even shock many. We are aware that Steve Jobs cancelled previous Mac licences when he took over at Apple and that he guards the Apple brand zealously."
Up until around 1997, companies including Power Computing were given the rights to license Mac technology from Apple. However, when Jobs returned to the company, he attempted at first to renegotiate the licences but eventually opted to cancel them.
Apple increased its share of the PC market to around 4.6 per cent in July this year, according to analyst figures.
Gartner claims that with the right partners, distribution channels and a more affordable price, computers running the Mac OS could eventually account for 20 per cent of the total PC market.
According to IDC, Apple's sales - while still smaller than its major competitors - grew by double digits in the second quarter of this year. IDC attributed the growth to a successful transition to Intel chips.
According to Apple's third-quarter results, released in July this year, Mac sales were up 12 per cent compared with last year, during what was considered a poor quarter for the PC market. Apple said 75 per cent of all Macs sold during the period used Intel's chips.
However, Apple will not be able to substantially increase this growth on its own because of increasing pricing pressure, Gartner warned.
Apple's margins for its Mac business, currently around 40 per cent, are only sustainable because component makers such as Intel choose to prop up the business, Gartner claimed.
Given that HP has forced Intel to offer it comparable pricing to Dell, Intel is unlikely to continue to subsidise Apple, the analyst argues. "As a result of permanently changed market conditions, Intel has been forced to restructure and, in our opinion, cannot go on supporting Apple [or any other customer] indefinitely," the report said.
Whether Apple's Jobs would sanction any of the suggestions made by Gartner is hard to gauge. However, comments made by the Mac-maker chief executive earlier this year suggest he is not unduly worried by his company's limited share of the PC market.
Speaking at Apple's annual shareholder meeting in April, Jobs said: "One of the nice things about having four or five per cent market share is you don't really care if [the PC] market is down."
Andrew Donoghue writes for ZDNet UK
Comments
There are 22 comments. Join the discussion
1. anonymous
The Apple persona is it's devotion to making a complete high quality product... Dell's agenda is to make cheap, very cheap adiquit computers. The two do not mix.
2. anonymous
This article contains a blatantly incorrect assumption: that Intel provides subsidies to Apple.
Because Apple does not place the Intel logo on its packaging or marketing, it receives no marketing funding from Intel.
Apple could do this, but then they would be lumped in with the general population of commodity PC manufacturers, which is contrary to their marketing concept.
Apple will license its OS X server and desktop operating systems once the microprocessor transition from PowerPC to Intel Core architecture is complete.
Even at the point sometime in the future when Apple derives the majority of its revenues from software, rest assured that their engineers and designers will always be crafting iconic hardware designs that stand out from the commodity PC manufacturers like Dell.
3. anonymous
I think not.
Clearly, this is an opinion held by someone that is not an Apple user.
I am, since 1980. I, and about 25 million others like me, understand that we pay a premium for our Macs. This is something we gladly do because of the value proposition.
Keep Dell away.
-apple-project.com
4. anonymous
Apple does contract out much of their manufacturing, true. However, so does Dell.
As such, why should Apple bother to go through Dell as a "Middle Man"? This intermediate step would only increase costs, which would then either lower Apple's unit profits, or force them to raise prices ... which hearkens the 'Macs cost more' paradigm.
Overall, Gartner's suggestion seems to be more aimed to help Dell through their current fiscal troubles but does not help Apple in any meaningful way at this time.
Perhaps Apple will need Dell for Dell's assemblers, but that would only occur when Apple's total market share exceeds 33%. Barring a Vista-catastrophy, at the current rate of market share growth, we're still more than a year or two away from having to cross that bridge, which gives Michael Dell plenty of time to become more retrospective and apologetic about inflammatory comments he has made of Apple in the past.
-hh
5. Todd Lockhart
That is, by far, one of dumbest things I've heard come out of Gartner. Dell's build quality has continued to decrease over time, while Apple's low failure rate is industry-leading. Why in the world would you damage that situation, especially when you're looking at near 30% profit margins? ...to save Dell? I think not.
If anything, perhaps Dell should hand management of their manufacturing over to Apple... things could only get better.
6. Eric Bartels
The Gartner report shows how out of touch most business analysts and venture capitalists are with what really matters in this age of branding.
Consumers buy Macs because of the exceptionally strond Apple brand, which is not just another marketing trick, but an authentic valuesystem. Within this valuesystem, the holistic integration of hardware, software and brand is the key to the succes of Apple.
Most business analysts and venture capitalists, especially in Europe, don't seem to understand this.
As the Gartner report shows, they really believe disconnecting the software from the hardware and putting the sofware in Dell personal computers, will lead to an increase of Mac OS X users from 4 to 20%.
This dualistic-instrumental-financial thinking is the main reason why you should never have a venture capitalist, accountant or business analyst run your company.
7. Brian Bixby
Apple, one of the only PC companies to show positive sales and earnings growth should . . . wait for it . . . quit selling its industry leading, award-winning, best customer-satisfaction hardware business? Crazy. Crazy!
8. Jill
'cause Dell make such inspirational, high quality computers that the spirit and magic of what makes Apple so attractive wouldn't be lost either!
Don't know why Steve didn't think of this earlier. Well done Gartner. Brainwave!
9. Toner
This may have been a good idea in 1998, but now Apple is selling an experience, and that is really catching on. Apple is the BMW 7 series, Dell is the Chevy Cavalier. Hello, Macs are optimized to run OS X. Optimized, you would'nt put a Chevy cavalier engine in a BMW, no because BMW does not license its engine bays to Chevy. Windows is the only engine that will power Dell, HP, Compaq, and other PC's. There are some really good advantages in having the software people working across the hall from the hardware people on the same campus of one company, and pretty much anyone that has owned/used a Mac for more than 3 months can tell you why. Apple is package deal, service, support, optimized hardware and software, and ultimately coolness.
10. Chris Anderson
If Dell made Macs they would cost the same as Windows PC's
Apple's business model has always relied on low volume / high margin even in the days of the Apple II
though I must admit they seem to have managed High volume high margin with the ipod.
I have always felt that Apple offered less for more and aimed at a clientel how think it must be better because it costs more.
11. David Sinclair
God forbid that Macs should ever be as cheap and nasty as Dell's PCs. I and several other people I know have ended up binning Dell desktops and laptops. The whole point about Apple Mac hardware is its robustness.
12. Julian Roger
I have worked on Macs for the last 5 years. I also have to fix Dell PC's for the account managers.
If Dell had anything to do with Apple the whole artwork industry would go down the pan.
13. Simon
It's clear that many of the comments are from people who've never used a Mac - and by 'used' I mean actually used one for their day to day work rather than a quick play around with it.
The reason people are prepared to pay for Macs is that they appreciate the value of the package. If you argue that it's daft to pay more than the budget bargain basement price for anything is just plain daft - at work we have a customer that's just spent several thousands of pounds on a new PC because that's what they need and a 300 quid budget model would have been a waste of money.
But back to Gartners report, I think they show a complete reality failure here. Apple already has most of it's hardware made by mass producers, many of them out in the far east. Handing the job to Dell is unlikely to save them money !
More importantly, I believe it would be bad for Apple to open things up, which wold be the inevitable result of 'going Dell'. At present, when you buy a Mac you pretty well know what you are getting - a quality SYSTEM with hardware and software that 'just works'. You don't open the box, switch it on, and then start feeding it driver disks for all the different bits of hardware the vendor felt like throwing in it today !
If Apple were to open up and licence the OS to other manufacturers (which would actually be very easy, technically speaking) then I doubt we'd see any innovative products from the third parties - that's certainly the case for last time they did it ! What we got was cheaper boxes with little by way of differentiation beyond cheapness - both in price and quality. It would be nice to think we'd get some clever boxes that would fill the gaps in Apples hardware line (and yes, I can think of a quite a few things where Apple is lagging behind), but lets face it, that is unlikely to happen.
The result would simply be a mass cheapening of the brand and ultimately a loss of market share.
14. anonymous
Perhaps if Apple licensed Dell to make Macs, then Dell wouldn't continue to lose market share.
15. Craig
Why is everyone knocking Dell?
I've owned and used a great number of PCs from a variety of manufacturers including custom build over the years and time and again Dells win out for reliability, cost and features.
I'm not looking for the fastest games machines or media engines but solid, reliable development workstations - either on the desktop or on the move and it's just so easy to pick a cheap Dell - I can just count on the best balance of reliability and cost.
On the other hand I do look at Macs enviously - their design is breathtaking, beautiful even and the user experience is a mile ahead of Windows. But noone I know uses them for business because businesses dont buy things beacause their cool.
16. anonymous
Dell will be sale is whole corporation to Apple pretty soon. We shall seeeeee....
Oh before I forget what kind crap you smoking. Scientists prove that smoke kill or live people brainless.
17. anonymous
Mac desktops are no more expensive than similar pc's. that's a out of date agument. Apple is not served by getting into the cheap compotent PC ($299 after rebate). Heck, Dell's trying to get out of that business. Apple serves a higher end market, and would not recoup those profits with volume licencing.
Plus, DELL doesn't do it that well anymore anyways. .
18. Zardoz Z
Apple has been making rubbish for years and treating it's users like mushrooms(kept in the dark and fed lots of....).Having dell make macintosh computers would reflect macintosh computers-garbage. I used their machines for 17 years and i can safely say that apple give less for more-perfect machines for people who think it has to cost more to be better-apple certainly are no BMW or mercedes-they are a tired jalopy.
19. Machead
Juaaaaahahahahhhahhhhahhhhhaaaahhaaaaaaaaa
20. anonymous
Yeah, and BMWs should be made by Hyundai while Champagne should be made in India.
21. anonymous
hahahahahaaha.
22. Larry the Cable Guy
Larry The Cable Guy Weighing in here:
Can you beleive that!!! What are them boys at Gartner smokin.
Let me tell you what I sure don't want my champagin made in India or my Beamer made by Hyundai or my Jack made by Pepsi.
This pretty much seals the deal for Gartner, time to enforce the no drugs and alcohol while at work policy. Cheap is as cheap does. Can You Beleive That!
Apple is hot, let's all go dump some gas on their fire, I'd like to keep them boys and Gals at Apple kicking Dell butt, like they always have. If Dell and Microsoft had to live on their own innovation, they would not need a corporate weight managenent and exercise program.
Oh well good thing about Dell the IT departments love em, job security. I been places where the people just stop working cause the computer stops and the IT people think no one can fix anyting on their own, I'd say that's a fact if yer runnin Dell. We got all Mac's here at my engineering compnay and we gave the IT guy a job learning how to use VectorWorks and Concepts Unlimited Solid Modeling on the Job with a Mac, he has lost weight, his colestral is down and dosen't drink as much any more. Now instead of being maintenance overhead he is value adding to our designs we sell.
We would not tollerate the problems people just take for granted with Pee-Cees on our Macs. Apple has a legendary reputation and legacy to maintain. Heck and well, Dell needs help, why would you put Dell in charge of Apple future. Apple's distibution and infrastructure is super, order a computer form them today and it is on your door in a week if you want it delivered for free or tomorrow morning it you want to pay Overnight.
Their are many many committed Apple Independant Dealers and Awesome Retail Stores where you can get parts and service while you wait. Any independant Dell dealers? Let's talk about value to an economy.
That's all for now, from Larry the Cable Guy, Get-R-Done Apple, Keep up the good work making the Ferrari Of computers, leave the slower stuff to Dell!!!