What a difference innovation makes. Just a few years ago it was Michael Dell telling Apple to shut down and give the money back to shareholders.
Today, Apple is worth $15-billion more than Dell. Aren’t you glad that no one at Apple listened to Dell?
Apple’s shareholders of the past few years are happy.
The much coveted “beleaguered” crown of the computer industry has changed hands.
Tens of billions of dollars in Dell’s value has slowly been sucked dry by a stockmarket that prefers innovation and quality to cheap.
Stock analysts expect Dell to announce yet another revenue and profit shortfall as PC prices drop and the market slows.
What happened? Wrong business model. Those who live by the price, die by the price.
When prices drop, there’s nothing to prop them up and keep margins sufficiently healthy to feed the machines.
Machines? Yes, as in plural. Dell must maintain certain margins to feed it’s own machine; the cost of doing business.
Dell must also grow business sufficiently to continue to grow revenue, and keep profits in line with expectations to feed the fickle Wall Street stock machine.
Dell is failing on both counts.
The business model that Dell built over the years has a fatal flaw.
When business softens, Dell simply can’t make products cheaper to offset lowered demand.
When competition becomes stiff, as it has in recent years, gross profit margins become razor thin or non-existent.
Analyst Eric Ross, quoted in BusinessWeek, says Dell’s PC units and profitability are “declining rapidly.”
How does Dell’s fortunes, or lack of, compare with longtime nemesis Apple Computer?
It was just a few years ago that founder and then-CEO Michael Dell, when asked what could be done about Apple, said Apple should be shuttered and the money returned to shareholders.
While that was a shockingly idiotic, immature, and insensitive thing to say, considering Dell’s position at the time, it was understood by most pundits as Apple was in dire straits and no one had a good solution for saving the company.
Except Apple’s founder, Steve Jobs, and his band of merry men from NeXT.
How do the fortunes compare? Nearly all analysts have a “sell” rating on Dell, and a “buy” or “hold” rating on Apple.
Dell’s stock is trading in the low $20s, while Apple’s stock is in the mid $70s, which makes Apple worth over $15-billion more than former market darling Dell.
How did all this happen? What’s Apple doing right that Dell is suddenly doing wrong?
One market analyst says Dell “is in a near-impossible situation.” Prices on PCs must remain low or market share will be lost to rivals.
Who stands to gain from Dell’s misery? PC competitor Hewlett-Packard is one, since much of HP’s business is diversified into many revenue areas, such as printers.
Market share is also being lost to Apple Computer as one report shows the Mac maker with a 23-percent increase over one year ago.
Mac sales continue to grow even during the difficult PowerPC to Intel transition of 2006, now completed.
The market loves good news and customers like to buy from a winner. Dell’s days as a winner may be over. Why?
Look at the news. From Dell, all the stock market analsysts hear is bad news; batteries that explode or catch fire, customer service problems, revenue shortfalls, profits near zero, no innovative products, executive team in disarray.
Compare that to news from Apple, which seems to be made of Teflon these days.
Not only did Apple deflect the burning battery issue to Sony, the stock price has risen steadily in 2006 as the company meets one success with another.
Success? Yes, the transition to Intel chips in Macs was completed a year ahead of schedule. Macs are competitive in price, even with Dell’s PCs.
Reviewers are giving top marks to Apple’s mainstream machine, the new 20-inch and 24-inch iMacs.
Apple’s complete iPod line has gone through a full refresh months in advance of the important holiday selling season.
If Dell is a one-trick pony, Apple has become the circus juggler with multiple successful and profitable revenue streams.
Not only are all Macs growing in sales, Apple’s iPod line continues to rule the portable media player market with nearly 80-percent market share.
Matching that stellar position is the newly revamped iTunes Store. Apple software sells to new buyers and current Mac users.
Apple is diversified. Dell is not diversified.
How does Dell respond to Apple’s successes? They stop selling much of their portable music player line.
How did Apple respond to Michael Dell’s infamous recommendation to close the doors in Cupertino?
Apple continued to innovate, produce better products, take a few calculated risks by introducing a music player, switching chips to Intel.
You see where all this is going, right?
It was our own Tera Jean Patricks who preached the axiom that “nothing improves without change.”
Apple has not only shown itself to be willing to change, but lives on the exciting edge of change.
Dell does not. Well, that’s not completely true. Life is exciting for both Dell and Apple shareholders.
Apple’s shareholders are wondering about what to do with all their profits. What of Dell’s shareholders?
They’re living in exciting times, too, trying to figure out how quickly to jump Dell’s sinking ship and dump the stock.
If it’s true that what goes around comes around, then Apple and customers are about to enter some exciting times.
Macs run at least as fast as any PC and cost about the same. OS X Tiger runs rings around Windows XP and Vista.
On the horizon is OS X Leopard, new computers with faster chips, new wireless devices, perhaps even Apple’s version of a cell phone for the rest of us.
What of Dell? A few years ago, another high tech titan was in trouble, and someone of position, power, and notoriety suggested they close the company and give back the money to shareholders.
That simple, thoughtless phrase says more than you might think about the man who said it and the company he represents.
Had Apple closed the doors, there would have been no value left in the company, therefore nothing much to give back to Apple’s shareholders.
Today, Dell is in a similar position as Apple was just years ago. It’s one thing to eat your words, it’s something else again to take the medicine you recommend.