Apple Should Get Out of Hardware?

SQLGuru writes to mention an analyst recommendation being reported on ZDNet. Despite a BusinessWeek article about Apple's record breaking hardware sales, the folks at Gartner think Apple should get out of the hardware business. Calling for the company to license its hardware to Dell, the analyst company says that gains in Apple's hardware sales are simply not sustainable. From the article: "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.'"

But the iPod

is hardware!

Hey ZDNet...

1997 called, they want their Apple doomsaying back!

I haven't heard this one in a while.

This used to be the standard advice given when Apple was ailing in the 90's. Back then it was slightly different, as they were suggesting that Apple license out their OS and let others handle the hardware side.

But controlling the hardware is good for Apple. When none of the PC manufacturers jumped onto USB, Apple did. The same with Firewire.

This is why hardware is good for Apple. Because they can innovate like that with the least amount of Red Tape.

Without hardware, they would not have had their successes no matter how awesome Mac OS X - iPod, iMac, their notebooks in general.

Hell, I think they should produce more hardware - like a Newton successor, preferably something small and that can slide into a PCMIA slot to do the syncing and charging.

Anybody who suggests Apple gets out of hardware is smoking something. And it's not the good stuff either.

Apple Get Out of Hardware?

Seems they tried that before and Apple was in such dire straits Jobs returned to salvage the company and close down the external Mac builders. Let's face it, Apple has survived because the dictatorial nature of product development at Apple means they can establish the trends and bail on those that don't do well, without worrying about maintaining a library of drivers even an orangitan couldn't keep up with (Ook) The PC/Windows path has Microsoft trying to keep an overweight operating system working on a staggering array of hardware combinations. Small wonder very few actually know what the heck is going on with things and most problems are countered with "did you try updating the drivers" or "Have you tried disconecting things until it works" or "You need to do a full re-install"

I wouldn't agree with having Dell make the machines, either. Their quality isn't a shade of what it once was. Dell made their name with competitively priced hardware which was built almost as solidy as IBMs. Now it's all cranked out in China and is as good as anything else cranked out in China, so there's no real advantage over competitors.

Moo

Is he saying Apple's core business was seeded by Intel. And that without Intel rooting for them, it'll be the pits, so Apple should branch out into other areas?

Actually, Apple has a good name, with solid products like the Macbook, iPod, and OS X. I don't think Apple will have that mcuh of a problem. People don't run to Apple because of price, they run to them because they make decent, user-friendly hardware. Comparable devices are copies of them, and usually more expensive. If prices rise, Apple will go up a bit more, but will that actually drive people away?

the 1990s called...

...they want thier stupid apple-should-get-out-of-harware story back.

Sure

And why not, have you seen the earning reports? Apple is on the ropes. Record losses, losing market share, constant layoffs, etc. They clearly cannot support their current business model, hell at this rate they will be bankrupt in a year or two.

I would go even further, obviously they are losing money hand over fist on hardware, but I don't think that OSX thing is doing them any good either. And lets face it, the iPod does not have wireless and is pretty lame. Chuck it all and go with the business that has a REAL future. I of course speak of iTunes music store. Look at Napster, they are racking the money faster than they can handle with just an online music store. That is the wave of the future my friends. I only hope Apple has the good sense to listen to reason on this one, and not delude themselves that they are a successful company. The numbers clearly show otherwise.

Finkployd

Yeah Yeah Yeah... heard it before

Apple... going out of business since 1976.

That's absurd.

Good thing Gartner is responsible for such great machines that they can... oh wait, they don't make anything but over-priced analysis.

I've had some decently-made PCs out of the 10 or 12 I've owned, but nothing like the quality of my Macs. I switched for home use a couple of years ago with a PowerBook. I added a MacMini last spring and a quad MacPro recently, and they are absolutely some of the nicest machines I've ever seen since I started as a tech in '79.

Apple would be completely stupid to give up that control and differentiation from everyone else.

Apple makes the finest consumer equipment

A few counterpoints: 1. Apple is a hardware company. They make their revenue from hardware sales, not from software sales. 2. Apple makes superior hardware. Have you seen the inside of the Mac Pro? I have one, and I'm very impressed. The only internal cable is for the IDE optical drive. Everything else is modular. 3. Apple doesn't actually make their own hardware. They design it and have it manufactured to specifications. The motherboard of the Mac Pro was designed by Intel and Apple, but is manufactured by Intel. So, if one would agree with me that their hardware is superior, and one understands that Apple does not manufacture the hardware, how would Apple be limited in manufacturing ability, and how would it help Apple in any way to completely commoditize (if that is a word...) the production of hardware to support their OS? When Apple needs to ramp up production, they can choose an additional manufacturer to support their needs. In addition, since Apple makes a majority of their money from hardware, they would need to redesign their business model to become profitable in the software market. And by the way, is Intel really here to "prop up the market" or are they here to make money? I can't imagine Intel is making deals like those with Apple and intentionally losing money.

My recommendation

is that Gartner should go out of business permanently. This is just yet another load of BS from them, just like "50% of tech jobs will be outsourced in the next 5 years, and as it JUST so happens we have an offshore consultancy agency. Imagine that!"

Nothing but crap comes out of Gartner, how they are still in business is beyond me.

Morons

Gee with increasing volumes large margins are not sustainable because Apple won't get as good of deals from Intel? Yeah that makes sense.. err wait no it doesn't! As volume goes up, Apple will get better deals from component manufacturers, in general, not worse. Maybe Intel will not cut them as nice of deals, but with increasing volumes, Apple does not need to maintain margins. Most of their costs are fixed. OS development, marketing, industrial design, etc. make up most of their costs, but remain fixed no matter how many units they ship. If they ship twice as many, they can cut their margins in half without being affected.

Either the Gartner people are looking to the very short term or they're out of their minds. The only way to free yourself from the influence of a monopoly is to maintain a complete vertical chain of components, including the one they have monopolized, but separate from their market. Apple doesn't sell their OS to Dell for two reasons. One, it would seriously cut into their hardware sales as people went to what they perceive as cheaper machines and were unable to compete with Dell's market outlets. Two, MS will kill Dell if they tried shipping OS X pre-installed. As soon as Dell had to re-negotiate their OEM licenses for Windows, MS would offer them the choice of being the largest supplier of computers in the US, with the cheapest rate for Windows, or being the most expensive supplier of PCs in the US. Assuming Gartner is 100% correct and Dell took all of that market, they'd still only be selling 13% of the machines in the US and they'd lose almost all of their existing 32% of the PC market selling Windows machines. Oh Dell would love that bargaining chip, but it just might kill Apple.

No, now is not the time for such a move. Everyone who has tried to compete in that market has been killed by MS's lock-ins, even though several had superior offerings at the time. Apple needs to maintain their segregation until either the courts actually stop MS's antitrust actions or until they or Linux has grabbed a bigger chunk of the pie.

is this the same gartner that said...

1. in 1999 that by 2004 Linux would account for less than 1% of all servers on the internet?
2. in 2001, that Apache would be all but gone by 2006?
3. In 2004, that no other browsers would be able to take on MSIE?

Trusting Gartner's eval is a bit like listening to the white house or congress speak about Iraq; You just know that they have their own agenda and worse, the ones behind it, have zip experience or education.

Clue

Garner should get out of the clue business. The industry trade press props them up and everybody knows they haven't made a decent clue for years.

Re:Clue

No kidding. Gartner says that Apple sales growth is unsustainable because their margins are too high. Even if margins drop to normal levels it wouldn't necessarily effect sales. It might effect profits though. The latest market share figures but Apple's worldwide share at about half of their share of the US market.

I don't think people are predicting that Apple are going to overtake Dell anytime soon but they're growing and profitable. Even if Apple were to license to Dell (or HP) their hardware is unique and desirable. The latest sales figures prove that Apple don't need Dell. What's most surprising is that almost 2/3rds of Apple's computer sales come from only 3 models of laptop. Maybe that's the reason that Gartner are missing as to why Apple have such a high margin and not anything to do with Intel discounts. Top of the line laptops typically have higher margins than beige boxes discounted in their thousands.

Re:For the record...

Can we PLEASE stop spelling "fanboy" as "fanboi"? It is stupid.

Re:For the record...

My last laptop was a Dell Inspiron 1100. Within two months of getting the MacBook, the Dell laptop was in the closet. If you were to compare the MacBook with a Dell D620, the MacBook is a wonderfully engineered machine. While big corporations buy tons of Dell every year, corporate buyers care only about the price and not the user experience.

Re:For the record...

Yes, they sell a lot. And it's not top quality. From what I've seen there's about a 20% failure rate on machines. (I.e. needs a part replaced fairly soon. Usually the HDs).

Keep in mind that huge corps also base their software on Windows, and that doesn't make that inherently better either. Huge corporations go with the flow - nothing to upset the cart, because that can get you fired. If you're old enough, you'll remember the "Nobody ever got fired for buying IBM" slogan. *That* is why Windows and Dell are prevalent.

Re:For the record...

Dell sells about as many computers as Apple does, annually

That's just rubbish. Dell sold 37.3 million PCs last year, while Apple broke a record by selling 1.61 million Macs last quarter. Dell sells far more computers than Apple does.

Re:Apple is a bit different

Because everyone can offer Windows XP, but only Apple can offer OSX?

Re:I can hear the Apple Fanboi's screaming now

I for one agree. There really is no difference between a Mac and any PC now. It's all the same hardware in a slightly fancier case that costs you a bit more than a not so fancy case.

The major components like CPU, memory, and HD are the same but it is a simplification to say that it's all the same hardware. Especially when it comes to laptops. Except for BIY PCs, PCs are not all that interchangeable when you buy from the major manufacturers. You cannot replace a Dell MB with a HP MB and expect it to work perfectly. If you've done actually pricing between a Dell and an Apple feature for feature, the Apple is cheaper. Dell's target customer are those willing to pay the lowest price, period. Apple is not interested in that customer so their design is different than Dell's.

Right now Apple's hardware is really limiting as it does not have near the flexibility for a BIY or allowing for a good margin of tweaking.

Some would argure one of the reason that OS X works so well it that it does not have to support the plethora of hardware that XP or Linux supports. Apple controls their own destiny when they control their own hardware. Again, Apple isn't looking to court the BIY customer.

Re:I can hear the Apple Fanboi's screaming now

But Apple can only be in the software business if they control the hardware, and prevent tweaking, because a great deal of their stability, not to mention their software team size, depends on that hardware control. Just because the hardware is not more powerful than say, an AMD64, it can still be a difference, if say, you get to test your code on it six months in advance. You can't test a DIY six months in advance.

Apple doesn't make computers

They design them.

Correct me if I'm wrong, but aren't ALL Apple products built under contract by factories in Asia?

What could they possibly gain by turning their manufacturing over to Dell?

This is not a slam at Apple. I own macs and ipods and I think they design great products. I just don't think there's an "Apple" factory out there churning out the gizmos. Why would they turn to Dell -- a company with a horrible, horrible track record for quality and reliability -- to make their products, when their current business arrangements seem to be working just fine?

$10B in the bank, no debt, 12 profitable quarters in a row, growing marketshare...this needs fixing how, exactly?

The Gartner guys must have mixed vodka with their Red Bull again.

Re:Smaller builders are helpful

What Gartner fails to understand is that the winds of change say more about Intel then it does about Apple. Intel can't afford not to subsidize Apple or HP or Dell or anyone else. Intel is realizing that consumers, particularly Apple's consumers, don't really care what's on the inside. It could be Intel, AMD, PowerPC or SPARC and as long as the system is still running.br>
The fact is, the processor has become a commodity. The "experience" and end-to-end design that Apple sells is not a commodity. Who has lost their completitive advantage? It sure isn't Apple, and they know that.

Re:HaHaHa choke choke

Is it just me or has Gartner become a shill for certain companies that would like to see Apple and Linux fail?

Become? The US middle east intelligence folks have a better track record than Gartner for crying out loud.

Finkployd