An Apple as the teacher

Apple should give its hardware business to Dell, says Gartner. What an... interesting idea

There is much to question in Gartner's argument that Apple should cede its hardware manufacturing to Dell.

But it's not a bad idea.

It's far worse than that.

Apple and Dell have the same special, rewarding relationship that cat has with dog. In 1997, Michael Dell said that given the chance, he'd shut Apple down and give the money back to the shareholders. At close of play on 19 October, 2006, Dell's market capitalisation was $53bn. Apple's was $67bn. One company should certainly be taking lessons from the other — just not the way Gartner proposes.

As Gartner says, Apple has a sweet deal with Intel that helps the company have impressive 40 percent margins, many times those of Dell. But the ability to do a good deal is not in general a hindrance to a company — and there's no sign that Intel has decided to adopt charitable status. In PCs, the processor's percentage of the total bill of materials cost is around 30 percent — for those chips to account for all of Apple's margin, Intel would have to be wrapping each one in $20 bills before shipping them, gratis, to Cupertino.

With Apple's market not as ferociously price sensitive as Dell's, that margin is more robust than it appears. Apple simply doesn't play at the very low end: its brand is worth more.

In any case, it's not about the hardware — both companies produce increasingly indistinguishable boards from the same factories. Apple has a built-in advantage that it doesn't pay the Windows tax, and is excused from helping to prop up the Microsoft monolith. There's only room for one company with inflated margins in any particular food chain: Apple is happy to take on that job. Dell has nothing to teach it about profitability.

The question is more whether Texas can learn from California. Apple adds more value than Dell, because it does its own research and development and understands its customers better. Dell is suffering because it has grown to think of itself as merely a mechanism to distribute Windows efficiently, much as a parasitised spider hunts its prey merely to feed the wasp larvae that are eating it alive. Dell should learn to see the world as Apple sees it: a place where customers reward a good experience. There's the lesson to learn.

That, and not to listen to analysts.

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