Gartner: Apple should quit hardware business

Gartner: Apple should quit hardware business

Summary: The future success of Apple, Dell and Intel lies with a licensing deal between Steve Jobs' company and the PC maker according to analyst Gartner

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TOPICS: Emerging Tech
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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 firm Gartner claimed on Tuesday.

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.

"Apple should leverage its close relationship with Intel and team up with Intel's closest ally, Dell," the report states. "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 to 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 percent 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 percent 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 percent compared with last year, during what was considered a poor quarter for the PC market. Apple said that 75 percent 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 warns.

Apple's margins for its Mac business, currently around 40 percent, 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."

Whether Apple's Steve Jobs would sanction any of the suggestions made by Gartner is hard to gauge. However, comments made by the Apple chief executive in April this year suggest that he is not unduly worried by his company's limited share of the PC market.

"One of the nice things about having four or five percent market share is you don't really care if [the PC] market is down," said Jobs speaking at Apple's annual shareholder meeting in April.

Topic: Emerging Tech

Andrew Donoghue

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Andrew Donoghue is a freelance technology and business journalist with over ten years on leading titles such as Computing, SC Magazine, BusinessGreen and ZDNet.co.uk.

Specialising in sustainable IT and technology in the developing world, he has reported and volunteered on African aid projects, as well as working with charitable organisations such as the UN Foundation and Computer Aid.

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66 comments
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  • Same old song by a person who has no clue what makes Apple, well, Apple.

    Apple is a HARDWARE company. They make great software too, but it's the WHOLE WIDGET that makes Macs so great. Put OS X on a Dell and you get less than what you get from Apple's vertically integrated company.
    anonymous
  • Personally I think Gartner is a bit out to lunch.

    Apple is a computer company - they sell hardware. The OS is there to make the Macs the best they can be. It's not the other way around.

    To take a phrase from Watergate, "follow the money". Apple gives iTunes software out for free to Windows users so they will buy an iPod.

    Apple gains a lot of its strength from its superior industrial design. Elegant designs that in themselves can generate sales. Think of what would be lost if the design was left to Dell.

    And then there is customer service. My switch to a Mac came after a horrid week of trying to get help from Dell's customer service company in India. Have Gartner's experts relay on that consumer customer service (and not their IT department) and they might understand that Dell can't take care of their own consumers on Windows (which they've sold & service since 3.1) - there is no way they could handle Apple's level of CONSUMER customer service.

    It's also time to forget market share and simply look at Apple's growth rate, profit levels and cash holdings. Corporations aren't going to switch to OS X simply because Dell sells it.
    anonymous
  • Sigh. This again?

    Okay, let's do some seat-of-the-pants math based upon Apple's just announced numbers.

    Apple shipped 529,000 desktops and made $705 million doing so. So Apple made, on average, $1332.70 per desktop sale. Apple shipped 798,000 portables and made $1.161 billion. That means Apple made $1454.89 on each portable sale. In total, Apple made $1.866 Billion selling Macintoshes. With me so far?

    In the second quarter of 2006--which is the best I can find for Dell--Dell shipped 9.73 million PCs. HP shipped 8.107 million PCs. Lenovo shipped 3.994 PCs. Acer shipped 2.836 million PCs and Toshiba shipped 1.906 PCs. So, in all, the Top 5 PC manufacturers shipped 26.573 million PCs (out of 54 million total PCs shipped--a little less than half). Still with me?

    Okay. So, Apple made 1.866 Billion selling Macintoshes. Let's say Apple gets out of the hardware business and licenses Mac OS X to Dell for $100 per PC, just to make the math easy. To have a quarter like we just had, Dell would have to sell 18,660,000 PCs with Mac OS X. Considering that, last quarter, it sold 9,730,000, it would have to sell twice as many PCs as it usually does--with Mac OS X!

    Let's say that Apple teams up with the top 5 PC makers. 70% of their sales would have to be Mac OS X for Apple to make the same amount of money they made this quarter. We're not talking more money! We're talking the same amount! If they sold it through all PC makers, they'd still have to get almost 34% of the market to make the same amount of money!

    So, in other words, Gartner's theory that Apple would end up with about 20% of the market would mean that Apple would make less money than they made this quarter!

    And this assumes that Apple would be able to get $100 for Mac OS X. If Apple did this, Microsoft would drop it's price for Windows (which, as I remember from the trial, is around $100). It'd be a race to the bottom and Apple would lose that race--Microsoft has four times the money of Apple in the bank. They could give away Windows and outlast Apple.
    anonymous
  • Let's see if I have this right. Apple - which currently builds the best PC hardware in the world, with the best operating system in the world - should concentrate totally on that aspect of its business with the lowest profit margins: software. In order to do that Apple -- whose profits grew 27% in the last quarter -- should abandon the cool industrial design that makes it's computers wicked cool, and team up with a floundering company that sells a generic box with me-too industrial design and lousy fit-and-finish.

    Also, if Dell is so tight with Intel, why are they switching to AMD?

    Intel is propping up Apple, too? Hmmm. Apple was a $16 Billion, debt-free company BEFORE they switched to Intel processors. Also, Apple virtually owns the digital entertainment market. How much propping up did Apple actually need?

    Gartner just joined my list of analysts to not pay any attention to when it comes to the tech industries.
    anonymous
  • The Mac Pro costs less than a Dell Server, and works better/looks better/feels better/sleeps better/everything better. Don't be jealous of Macs, please, but I guess you make some sort of "point" but fortunately Apple serves creative users, and not rigid squares. Thank you.
    anonymous
  • I can't believe that someone actually pays that guy a salary to be an "analyst"

    His whole thesis is flawed, based on a single notion that apple has a higher margin because intel is supporting it. but apple had a high margin *before* intel as well? was IBM supporting it then? What is the basis for this claim?

    Not only is his thesis flawed, his proposed solution is as unrealistic as Jobs building an assembly plant on mars and hiring 28 armed martians to staff it. Apple is a hardware manufacturer and its growth is almost entirely dependent upon the sale of hardware. the ipod, he would be well to recall, is hardware.

    apple is all about vertical integration of software and hardware. that is what lets them keep such tight control over the products and their interoperability.

    this guy needs to stick to anlalyzing financial data and providing readers wtih a reliable picture of the current and future state of the company.

    Granted, that involves a lot more work than fantasies about what the company ought to do, but at least it has value. when this guy builds his own 55 billion dollar company he can do strategic planning, until then he would be better to confine himself to more modest goals.
    anonymous
  • This analysis demonstrates what can happen when you give too much weight to one (potential) negative factor while ignoring every other relevant fact. The result is hogwash. The author would have done better to wait to see Apple's latest quarterly results - which put the lie to his conclusion. Apple had its best quarter ever with record Mac sales, 30% ahead of last year.

    Melodramatic speculation masquerading as analysis is not uncommon in the tech and especially the financial press, particularly in respect to their coverage of Apple Computer. The most likely motivation for this misguided reporting is the compulsion to publish something "interesting." "Let's go grab a headline, even if what we're saying is nonsense - credibility be damned. Apple's doing well right now so let's forecast an end to the good times, make a controversial recommendation and see how much dust we can kick up." Humbug.
    anonymous
  • Dell bought Alienware and is no longer exclusively using Intel motherboards. "Closest ally"? They have been making PC's with AMD equipment on the side.
    http://www.geek.com/news/geeknews/2006Oct/bch20061013039335.htm

    "Increasing component costs and pressure to cut its prices mean Apple's best bet for long-term success" WAS switching from IBM to Intel for it's components.

    Hey, maybe AMG should stop putting its motors into Mercedes Benzs and sell them to Toyota instead.

    Apple makes Macintoshes. Period.
    anonymous
  • I agree. And if Mac OS X gets 20% market share, then Windows will be history in three years.

    But Apple does not need to quit the hardware business. In fact, Apple does nice --very nice; extremely nice-- hardware. And it should keep on doing it!

    Even more: imagine Apple opens Mac OS X and gives it for free as Linux. Then Windows will be history yesterday!
    anonymous
  • OK, so in a recent audit on reliability Apple scored 201 coming in second behind Levono who scored 243 and Dell had a mighty showing at a score of 4!!! Thats right, not 204 or 104 or even 54, but 4, and this goose is saying Apple should let Dell build their hardware!!! Grow a brain!
    anonymous
  • Gartner has obviously never dealt with Dell customer support or used both Dell and Apple machines. I have, and I have sworn that I would NEVER buy another Dell machine. If Apple licensed their hardware to Dell, I would SERIOUSLY consider dropping Apple altogether. Apple just works because it is more than just an operating system.
    anonymous
  • I have bought and used Macs since the IIe, put Dell in the equation and I will move platform.

    Apple has provided me with a good level of service, I would give them 9 1/2 out of 10.

    Dell I would not even browse their web site, they do not know what service and loyalty is.
    anonymous
  • Apple's core strength is that it is vertically integrated and helps them guarantee the user experience. Gartner would have them become..... Dell? Maybe Gartner should license their thought processes to Miracle-Gro.
    anonymous
  • Thats a Joke. Apples Hardware is much more attractive than what other manufacturers are making. Also, Apples Harware/Software is free of the device conflicts that come with having many different manufacturer designs that don't quite play nice with Windows. I have repeatedly been angered when my wintel computer starts failing to work properly. The hardware company blames Microsoft then Microsoft blames the hardware company. With Apple controlling both, there is no one to pass the buck to. Granted, the earlier mac clones seemed to be free of these problems, but all they did was try to compete with Apple rather than try to increase Mac market share. All their advertising was to current Mac users. The clones did not increase the Macs installed base users in the PC market. Apple is too innovated to step aside and let others make the hardware. Look at the MP3 players that have come to market in the last 5 yrs to compete with Apple. Heck, look at the latest wintel laptops. They make me want to puke. Our office has Dells and I find them plain boring to the eyes. Where is the innovation in those. Most are pure ugly and hard to figure out.
    anonymous
  • I must say, I'm losing all faith in Gartner. All they seem to be doing recently is spewing ill-informed, inaccurate rants. They seem to be suffering from pre-senile dementia. I just don't know where to start with this one, so I'm not going to bother...
    anonymous
  • My regards for Gartner just went down somewhat after reading this.
    anonymous
  • Has Andrew seen the latest figures? Apple is a solid business and growing. It's ambition is not to become the only computer in world (like Dell or Microsoft) but to be a profitable business. Hence Apple will continue as it has. Software design is certainly a strong point of their but so is hardware design. The whole point of Apple is that both software and hardware are desinged well and work together well. A Mac without both elements isn't a Mac. Apple doesn't weant to be Microsoft (especially now that MS are shipping products that make a loss, and not shipping software that is poor but would sell).
    anonymous
  • The time machine at Gartner must be on the fritz! They seem to be stuck in 1996 when that idea was not idiotic. Here in 2006, Apple is selling Macs as fast as it can build them and holding their prices firm to boot! While they may be right that what Apple does best is make software, it is simply illogical to assume that they stink at everything else. Those of us who have bought Macs think the hardware is at least good, if not superior, and a lot of others admire Apple hardware, but are stuck with PC's for a variety of other reasons.

    Gartner better come up with some better analysis or it will wind up on the dungheap with Dvorak, Enderle and Thurrott.
    anonymous
  • This article makes no sense if you look at what's actually going on right now. With the switch to Intel, there are a lot of people who were never Mac users now buying Apple machines specifically to run Windows. Why? Because Apple makes great hardware. Their stuff is, in general, more reliable than Dell hardware but never mind that. The real point is that people like the style of Apple hardware.
    anonymous
  • Why would anyone listen to Gartner?
    This one story is just the tip of the iceberg in discovering how clueless Gartner is when doing analysis.
    Apple is eating Dell's lunch and Gartner thinks they should just hand all that success over to Dell. The fact that Apple has avoided Dell's model is the reason for their current growth results.

    Gartner should quit the analysis business and focus on their core strength, rumor mongering!
    anonymous