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.
Talkback
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.
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.
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!
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!
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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...
My regards for Gartner just went down somewhat after reading this.
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).
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.
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.
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!
This guy gives analysts a bad rep. It's clear that Donoghue doesn't understand the market, marketing or where the market is moving. He thinks its a price and cost of goods issue only and fails to recognize the inherent value of how Apple is playing its cards.
For instance, if you were to follow Donoghue's logic, BMW would be wiser licensing its IP and designs to GM because they could do it cheaper and because they have more dealers. Uh-huh. BMW sells perhaps 10% of the volume that GM does but BMW is more profitable and has an immensely more valuable brand that GM could dream of, which lays the ground work for more profitable models (line extensions).
Also, it's apparent that Donoghue doesn't understand the PC biz and its margins. For Apple to be able to grow share in a mature market dominated by price, and to have sustainable margins in the 30s means that Apple has a competitive advantage vs. low-cost vendors like Dell who MUST rely upon production efficiencies and turns to sustain profitability.
Apple's margins are to die for and why in the world would it give away that advantage? The only reason why customers buy Dell is because it's a "spec'd" machine (which means they have no choice) or because it's the cheapest box out there.
Donoghue should move on and analyze another industry like Telecom where he might have a better chance of saying something meaningful.
This preposterous claim is nothing but an attempt by Gartner to gain attention, since nothing they say really hold's any worth anymore. Comparing Apple hardware to Dell's is like comparing a Mercedes to a Chevy Nova.
Apple should open their hardware. They claim to be a company that represents innovation and freedom, so about time they released their architect to the general public.
An indispensable part of the thrill of using my iMac, as well as my iPod, as well as every other Mac I have ever owned, as well as my next Mac, IS THE HARDWARE. These dolts can't see that?
Apple continues to make money and PC/Windows luminaries continue to be puzzled. It must be a slow news day. I know I've read this story before in 2005, 2004, 2003, 2002, 2001, ...
mmm... In my life I bought many Apple computers and many Pc's , a few of those were high end Dell workstations. Out of 5 Dell's I had to return 4 because they were malfuctioning (2 freezing, 2 crashing , all 4 for hardware reasons). I was hoping to get them them simply replaced , but Dell tech support expected me to do the troubleshooting for them. They wanted to send me several parts (graphic cards, ram, etc...) and they wanted me to replace them , test the machines until I had a working station. If I spend $8000 on a workstation , I don't want to end up working for Dell , I want my machine to either work or be replaced , quickly. That wasn't the case , so I returned 4 machines to Dell , got my money back and bought 4 (cheaper/better) Macs.
Just my 2 cents... (actually more like $16000)
Poster Federico may have put the finger on it: Dell expects its users to do their tech support for them, and the author of this absurd article, Andrew Donoghue (remember that name, folks!) expects his readers to do his research for him. it's amazing how straightforward and well-known the analysis and facts by the people posting comments to his article are, but Donoghue managed to dodge having any of this info lodge in his brain over the years. Since it's apparent he hasn't been following Apple at all, except in some weird, idiosyncratic, narrow sense, I wonder where he got the idea that he could write an article about Apple? Just because he's got access to a word processor doesn't mean he understands what's supposed to go into what he writes.
I'm not completely defending Apple--for all the glowing posts here, I know of many bad experiences people have had with Apple--just look at some of the Apple Discussions boards for plenty of Apple tech support horror stories that sound at least as bad as some with Dell, etc., including repeated repairs for the same problems, lies from Apple tech support to people calling them that they're "the first person to report this problem--there are no such issues known"; longstanding bugs in Apple hardware and software that they fix when they feel like getting around to it etc. (yes, I know they fix a lot of things quickly too)--but apparently Apple still ranks better in customer support than Dell, etc.
I hate it when "analysts" make predictions like this and it gets pick up by the media. Gartner makes its money making analyses of the computer industry.
Sometimes they are full of sh*t.
How do they think Apple got as much market share as it did this year?
If Apple stopped making hardware it would be out of business. They are a hardware company. I don't think the mindless masses are going to choose the MacOS as an option for their Dell P.O.S. box (heaven save us from Dell's designers), because they will buy what most of the world uses, Windows.
Apple and Mac will never be Microsoft, and I mean that in all the senses of the phrase.
Should Apple get in bed with Dell it might help Dell, but ruin Apple! All our Mac’s have been handed down and continue to function for the users and can be upgraded! That's good for the planet. Maybe Gartner's clients need to unload their Dell stock and thus the rational behind the idea? Apple users already saw those clones 'box mover' mentality seeded at Apple marketing. Apple innovation would be lost on a firm that depends on the lowest cost and limited ability to update existing machines. Apple has earned an ever growing user base while maintaining early adopters due to quality and after sales care hard to find today with PC makers. True it is more expensive to require hardware and software to provide a near perfect, no excuses result. Since Jobs return both quality and the user experience have improved and so they're prospering. No sense making them just another throw-away PC. Additionally, Apple has led most innovations in the industry because users trusted them and they controlled the hardware. Dell has a spotty record and serves a different market, which would dilute the user experience and loyalty. If one were to marry a PC firm, it would be better to go to HP who have a better record with quality issues. Even better leaving Apple alone provides incentives to MS and the PC makers to do a better job.
You have to be crazy! One of apples best attributes is the hardware. Nowhere does a computer manufacturer put the extra effort into case style and materials. Its OK to have a small market share as long as the consumers are happy and it interoperates OK with other operating systems. I will always stick to reliable apple designed technology not some of the HA stuff out there. Apple, keep doing what you are doing!
Michael Dell's elusive pipe dream continues. He keeps saying Apple should pack it in because "all your base belong to Dell". I guess he's still got people buying in to his illusions of grandeur. Jobs and Wozniak created a new paradigm in their garage. Dell learned how to solder.
Some people just can't grasp the whole concept. It is the combination of software AND beautifully designed hardware that make Apple product so attractive (Not to mention the fact that Apple product have a much longer lifecycle, they are built to last!). It took a simpler version, with the iPod for more people to understand what it is all about.
It's all a matter of concepts and goals. Overall Dell spends more in R&D than Apple, but with what goal? How inexpensive can you make the machine? What does that achieve? Low cost machines with no loyalty. Apple is focused on the user experience. In a recent interview, Steve Jobs slammed the Zune and in particular the sharing feature, saying that the by the time the song finishes transfering the girl is gone, that it is better to share your headphone with the girl, and she is now 2 feet away from you. BRILLIANT!! How's that for thinking of the user experience.
P.D., I do use both OS X and Windows during the day.
Thanks Gartner! You have convinced us to avoid considering your services. Why with keen analytical insights like this it is clear that you simply do not understand the market, or much else apparently. So, how's this for an analysis "... parasitic business models typified by Gartner have out-lived an originally naive audience ... such organizationms should instead focus on contributing to society in some fundamentally important fashion".
It really is amazing how consistent analysts are in misunderstanding Apple. For two decades they have underestimated the value of a well-integrated system of hardware and software that *just works*. Apple thinks about user experience first, which is why their products inspire such loyalty, and why their brand has such staying power. Thinking about their success or failure purely in dollars and sense is typical of the short term thinking that dominates market research in the computer world.
You guys are all Mac users, aren't you?
I'm here to represent enthusiasts. Information of every kind demands to be free, unless it be either personal, or state-level sensitive. I want to see Apple bankrupt. Quit giving them good advice. The GNU movement could use their programmers.
It is rather amazing how misguided and ill-informed you are. Please set a date 12 months from now in your calendar to review this silly article and have a laugh at your expense.
Hey isn't Dell now using AMD's proccesors now?
This posts a day after the announcement that Apple is GAINING market share and Dell is LOSING market share. This makes no sense. Apple doesn't need anyone to survive. Why should Dell make Macs? So they can all look like ass? I think not.
Quality still matters. Apple has it, most don't. Apple would shoot itself in the foot by quitting the hardware business.
Isn’t it wonderful when the trolls write the articles?
As an IT professional that has been in charge of troubleshooting both Mac OS– and Microsoft Windows–based computers for years, I can unequivocally state that Dell hardware does *not* compare to Apple hardware. Apple hardware is significantly more robust and almost invariably has a lower initial price tag. Add the amount of time the average Dell is down for repairs, and that difference gets much, much bigger (although admittedly, much of that *is* due to default OS).
Seriously, though…. If Apple were to stop making computers and license their OS to Dell, I’d buy a MacBook at virtually any price and ride it out for as long as possible. Maybe if Dell were capable of making a halfway decent computer, this article would make sense. As it is, I’ll stick with my Mac, thankyouverymuch.
Gartner has demonstrated a thorough lack of understanding of just what Apple is good at, not to mention what a person receives when they buy a Mac. If they can't tell the difference between a Dell machine and an Apple machine, they need to hire some new analysts -- some with at least an understanding of if not an appreciation for taste and how it drives purchases.
Apple is a master not of hardware or software but of controlling the entire experience around their products - better known in this day and age as branding.
Gartner totally misses the point by reducing it to cost analysis.
Apple will cature 20% of the market without Dell because of the singular focus of their brand, which includes the entire Apple experience. People will gladly pay a premium for Apple products once they start to "get" it.
Hey, it worked for me....
As if the author knows better. Its so obvious that he just wants to attract attention. Who will give us the macbook, imacs, ipod and other cool stuff, Dell? You gotta be kidding.
I agree that Gartner obviously has not looked into Dell customer service, let alone experienced it. I would further posit that Apple has enough business acumen to avoid sabotaging its own reputation for excellence in hardware and software.
I'm a PC user with previous Dell experience.
Dell service SUCKS. Apple service is GREAT. I've had trouble with both Apple and Dell hardward this past year. My Apple problem got fixed in a day. I still have not reached the right people at Dell, have been disconnected from phone calls and chat sessions and ignored in email. APPLE SHOULD STAY AWAY FROM DELL.
Yeah, sure and Porsche should license the 911 to GM and B&O should license their stero to Sony and Cartier should sell diamonds at Sears and...well Mr. Gartner should look up the meaning 'cache'.
Hello, this guy is full of drugs,or something. Why would Apple even give a hoot about what Dell is doing. For one, and really for only, Dell and every other PC maker can't make a PC, or laptop that looks anything like an Apple computer. I have a Mac Pro on my desk, an a Powerbook I take with me. I have NEVER found a Windows machine that could look as good as they do. This guy who came up with this stupid idea should be fired. Now. Before he screws up something else important.
What an absolute idiotic notion. Apple IS a HARDWARE company, asshat. Not a software company. What kind of dumbass came up with this drivel anyway? Dell makes garbage PC's, and their customer service sucks ass compared with 5 years ago when they were known for their good CS... this articel blows, and Apple is a hardware company, anybody who says different doesnt know WTF they are talking about!
Will this talk never end? Apple's hardware design is part of the Apple brand. When Apple is doing bad "analysts" say to drop the hardware, when they are doing good they say Drop hardware. lol Im ok with being part of a small market share. I like driving my Porche while everyone drives their Toyota ;)
Gartner: always good for a laugh
They've been wrong w/r/t Apple since the mid-90s, why expect them to do any better now?
I almost did a spit-take when they referred to Dell's "superior infrastructure." Had to check the calendar to make sure it's not April. "Decaying infrastructure," perhaps.