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Apple Should Get Out of Hardware? 730

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.'"
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Apple Should Get Out of Hardware?

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  • But the iPod (Score:5, Insightful)

    by mei_mei_mei ( 890405 ) on Thursday October 19, 2006 @02:21PM (#16504951) Homepage
    is hardware!
    • Re:But the iPod (Score:4, Insightful)

      by Wellspring ( 111524 ) on Thursday October 19, 2006 @11:28PM (#16512329)
      Exactly! Many of apple's "software" value is actually in hardware. The comparative stability of their platform, their control over the overall user experience, all stems from their control of their hardware platform.

      Also, from a business strategy perspective, Dell's company may be pursuing operational excellence, but Apple's value discipline is product leadership. If Apple tried to compete on cost, it would lose-- economies of scale alone would be against it, plus much more. Apple's value is that they have in the customer's eye a far superior product, one that people are willing to pay a premium on. You think that Apple could keep its already-slim market share if they became a commodity? Of course not, apple's strength has always been that they play their own game in their own little protected part of the market.

      The accounting value of improving or preserving margins is far outweighed by the strategic value of their product differentiation and perceived customer value. If apple listened to gartner and lost that, they really would be dead.
  • by mr100percent ( 57156 ) on Thursday October 19, 2006 @02:22PM (#16504979) Homepage Journal
    1997 called, they want their Apple doomsaying back!
  • by rolfwind ( 528248 ) on Thursday October 19, 2006 @02:25PM (#16505031)
    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.
    • by Hes Nikke ( 237581 ) <> on Thursday October 19, 2006 @02:49PM (#16505563) Journal
      When none of the PC manufacturers jumped onto USB, Apple did. The same with Firewire.

      it's this kind of rewritting of history that pissess me off. Apple came to the USB game late. what they did different was that they dropped all legacy support at the same time. USB was intoduced [] in January 1996. the iMac shipped [] (with ONLY USB ports) in August 1997.

      Firewire (an apple created technology!) took even longer for apple to adopt! it was introduced [] in 1995, and shipped built-in [] in 1999. Sony may have even beaten apple to that game!

      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.

      You missed an apple adoption of technology that the rest of the industy has ignored - ExpressCard []. No apple computer ships with a PCMIA [sic] slot. The MacBook Pro has an ExpressCard/34 slot, so a PCMCIA sized PDA wouldn't fit anyway.
      • by mmeister ( 862972 ) on Thursday October 19, 2006 @04:01PM (#16507045)

        it's this kind of rewritting of history that pissess me off. Apple came to the USB game late. what they did different was that they dropped all legacy support at the same time. USB was intoduced in January 1996. the iMac shipped (with ONLY USB ports) in August 1997.

        What Apple did was drive USB into the mainstream. No, they weren't the first ones, but by dropping all the legacy support and going USB-only, they signaled a change, which has yet to be completed on the PC side (most PCs still come with COM and PARALLEL ports.. God help us all).

        Firewire (an apple created technology!) took even longer for apple to adopt! it was introduced in 1995, and shipped built-in in 1999. Sony may have even beaten apple to that game!

        Again, I think the real point is that Apple again drove this more into the mainstream.

        The OP is partly correct in that USB and Firewire on PCs were not commonplace before Apple made them defaults on their hardware. Hell, there are still a lot of PS/2 keyboards and mice floating around TODAY. I wish that the PC manufacturers had the courage to finally drop old keyboard ports, COM ports and Parallel ports -- welcome to the 21st Century!

        Because Apple controls both the hardware and software side of the equation, it can push these things through much quicker than the PC world. No, they didn't invent it -- but they brought into the mainstream (much like they did with MP3 players )

        • Re: (Score:3, Insightful)

          by snero3 ( 610114 )

          which has yet to be completed on the PC side (most PCs still come with COM and PARALLEL ports.. God help us all).

          I am a UNIX admin and a Cisco network engineer. I configure my SUN, Linux and Cisco gear using the console. For that I need a COM port and guess what..... my fancy new macbook doesn't have a COM port so I had to go out and buy and USB COM port. So just because it is old doesn't mean it is useless. Personally it pissed me off when apple dropped everything bar USB as decent printers and worl

  • by ackthpt ( 218170 ) * on Thursday October 19, 2006 @02:27PM (#16505099) Homepage Journal

    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 (Score:5, Insightful)

    by Chacham ( 981 ) on Thursday October 19, 2006 @02:27PM (#16505101) Homepage Journal
    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?
  • by eshefer ( 12336 ) on Thursday October 19, 2006 @02:28PM (#16505107) Homepage Journal
    ...they want thier stupid apple-should-get-out-of-harware story back.
  • Sure (Score:5, Funny)

    by finkployd ( 12902 ) * on Thursday October 19, 2006 @02:28PM (#16505111) Homepage
    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.

    • Re:Sure (Score:4, Informative)

      by chill ( 34294 ) on Thursday October 19, 2006 @02:38PM (#16505331) Journal
      Just in case people don't see your post for tongue-in-cheek irony and actually take you seriously, this is today's reports on AAPL.

      * * *

        NEW YORK (Reuters) - Shares of Apple Computer Inc. (AAPL.O: Quote, Profile, Research) rose 6 percent on Thursday, a day after it reported a sharp gain in quarterly profit alongside strong sales of its popular iPods and healthy shipments of its Macintosh computers.

      Apple stock jumped $4.69 at $79.21 on Nasdaq, where it was the third biggest point gainer.

      Apple's fourth-quarter results, released late Wednesday, prompted Banc of America to raise its price target to $84 from $79 a share, while maintaining a "buy" rating on the stock.

      Another analyst, Piper Jaffray's Gene Munster, said in a note to clients that the results showed Apple's "formula is working" as the popularity of its iPods is translating into a "resurgence in the Mac platform."

      "We believe in six months the halo effect will expand beyond a simple iPod-to-Mac correlation into a four-way relationship with iPod, Mac, iPhone, and iTV benefiting from each other's success," said Munster. "If this plays out, Apple's growth rate should accelerate in 2007."

      Apple is widely expected by analysts to introduce a new gadget dubbed the iPhone, which will combine mobile phone features with the iPod.

      The company said in September it will ship a device, code-named iTV, in the first quarter of 2007 to let consumers stream movies, music, photos, podcasts and television shows from the Web to their home entertainment systems.

      In its earnings statement, Apple said it sold 8.73 million iPods, up 35 percent from a year ago, and 1.61 million Mac computers, a 30 percent increase.

      Cupertino, California-based Apple said net income rose to $546 million, or 62 cents per share, from $430 million, or 50 cents per share, a year ago. Revenue climbed 32 percent to $4.84 billion.

      Prior to Thursday's surge, shares of Apple had risen about 5 percent this year, compared with an increase of over 4 percent in the Morgan Stanley High-Tech Index , of which Apple is a constituent.

      © Reuters 2006. All Rights Reserved.
  • Huh? (Score:3, Insightful)

    by oneiros27 ( 46144 ) on Thursday October 19, 2006 @02:29PM (#16505117) Homepage
    First, we'll assume that Apple actually wants to continue their high rate of growth, which may not be the case. (eg, Jaguar could take a bigger market if they licensed their name to Ford ... um ... okay, bad example)

    The 40% margins are based on what? Because I would think that were Apple to get 20% of the market (over 3x what it is today), the individual costs of the OS are effectively 1/3 per machine in cost, comparatively. And the larger they get, the more sway they might have.

    And let's not forget -- Apple on Intel is a form of advertising for Intel. Apple is very, very good at getting in the press, so Intel might be willing to take a smaller margin in exchange.
  • by GateGuy ( 973596 ) on Thursday October 19, 2006 @02:29PM (#16505123) Journal
    Apple... going out of business since 1976.
  • by iamacat ( 583406 ) on Thursday October 19, 2006 @02:29PM (#16505135)
    People have lost trust in quality of mainstream PC hardware and software, which is a big reason for growing Apple shipments in the first place. Nobody will trust a Mac from Dell. If Apple allows independent licensees at all, it should be a Japanese company line Sony or Panasonic. Even then there are many dangers. Licensees may not ship timely updates to hardware to run the latest releases of MacOSX. Look at how many PCs are still shipped with Intel integrated graphics which will suck on Vista. Does anyone really think the switch to Intel would have gone as quickly with 5 vendors who have their own investment in PPC macs? 3rd parties may not have support on the par with AppleCare and Genius Bar. By providing a complete package, Apple gives you one place which is going to be responsible for any problems you have with your purchase.

    This doesn't mean Apple should design and build everything in house. iPod design is already done by several outside companies and I believe Powerbook is designed by Sony. It's just that they should approve what is actually shipped and how its supported to guarantee the quality.
  • That's absurd. (Score:5, Insightful)

    by bobalu ( 1921 ) on Thursday October 19, 2006 @02:31PM (#16505177)
    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.
  • by qwertphobia ( 825473 ) on Thursday October 19, 2006 @02:32PM (#16505197)
    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 (Score:5, Insightful)

    by antifoidulus ( 807088 ) on Thursday October 19, 2006 @02:32PM (#16505199) Homepage Journal
    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.
    • Re: (Score:3, Funny)

      You know, I wonder about the same thing with John C. Dvorak.

      He's never right, yet he still has a job.
    • by PTscores ( 1015775 ) on Thursday October 19, 2006 @04:52PM (#16508075)
      Fortunately! There's a few so-called 'gurus' out there that haven't got a clue! To them, everything is a commodity! Innovation, creativity, design, development & customer service over the long-haul, ease-of-use, enormous complexity made simple, et al - are just commodities! These so called 'experts' and 'analysts' think all of these systems factors come along by chance - from garages! The majority of these desk jockeys couldn't design their way out of a wet cardboard box! Grasp the reality folks! These over-the-top talking heads are after publicity - the more outlandish and extreme, the more likely they'll be noticed! Try another perspective. Apple is not now and has never been in the 'hardware' business. Neither is IBM. Dell & Gateway are in the hardware biz. Apple isn't in the software biz either. Oracle, Adobe, Microsoft, Claris, & countless others are the software biz. Apple, like IBM and Boeing, is in the integrated systems business. Solutions and problem solving for end users. HP is also in the integrated solutions biz. Apple's R&D is dedicated towards original & unique designs, the true 'artwork' of the end users' experience. Anybody checked out the iMac's design in detail? Or the new Mac Pro interior? True works of industrial art - unmatched by anybody anywhere! And certainly not understood by 'guru' desk riders! Apple contracts to manufacture most of it's equipment & components for so many obvious reasons it doesn't justify words! Apple integrates thousands of parts & pieces to create user solutions that include, yep! Hardware with supporting systems and applications software - unmatched by anyone anywhere! Even hinting that Apple leave the 'hardware' business, reveals the author of such ideas as an unreliable source of technology industry info.
    • Re: (Score:3, Insightful)

      by stevesliva ( 648202 )
      Those who can, do. Those who can't, join Gartner.
  • Morons (Score:5, Insightful)

    by 99BottlesOfBeerInMyF ( 813746 ) on Thursday October 19, 2006 @02:36PM (#16505291)

    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.

  • by WindBourne ( 631190 ) on Thursday October 19, 2006 @02:44PM (#16505483) Journal
    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.
  • by twotommylong ( 794494 ) on Thursday October 19, 2006 @02:47PM (#16505531)
    So, let me get this straight,

    Dell strikes a sweet deal with Intel after opening up it's systems to the AMD line...

    HP muscles in and says it will go to AMD (I assume) unless it gets the same deal as Dell.

    Dell and HP are in a deathgrip to maintain market share for the corporate and household WinTel platform, and are being nipped at by Lenovo, BestBuy, Walmart, etc, for market share, house branding, and margins

    Apple, which has the luxury of owning premium software that can run on multiple platforms, let alone on an x86 platform, and is probably already paying slightly more (due to volumes) than Dell or HP, Apple is the EVIL one here, and should be punished by Intel asking for a higher per unit cost for components, because Apple is more profitable?

    I see this as ludicrous as Goodyear asking for Honda to pay [even] more for the same tire as GM and Ford, because Honda can afford to pay it... x86 is a freakin' commodity, like pork bellies, and batteries (SONY, pay attention!!!). It's an important commodity, but fundamentally, a chip is a chip, and it's just that.

    Intel is not subsidizing Apple... Intel is subsidizing the big boy PC maker market in order to stave off AMD and maintain market their share. This article infers that Intel will soon ask Apple to help subsidize this partnership, and apple will be in no position to fight back....

    I hope Apple says either "AMD called yesterday and built a proto system on the PLUON chip... It ran OSX without mods... doesn't need another Universal Binary... just plug and play" or "You know, you should come over sometime... the boys in the labs, They built a sweet OS X system that uses a CELL chip from IBM.... Obtw, here's our order for 6million Core 2 Duo and Quad CPUs... volume pricing hasn't changed... correct?"

  • by Cr0w T. Trollbot ( 848674 ) on Thursday October 19, 2006 @02:53PM (#16505639)
    Let's look at the cold, hard (cash) facts, shall we? First Dell, from their most recent (Q2FY07) results: []

    (in millions, except per-share)
    Q2, FY'07 Q2, FY'06 Change
    Revenue $14,094 $13,428 5%
    Operating Income $605 $1,173 (48%)
    Net Income $502 $1,020 (51%)
    Earnings/Share $0.22 $0.41 (46% )

    Now let's look at Apple from their most recent announced results (in their case it's Q4 FY06 vs. Q4 FY05): []

    Q4 FY06 Q4 FY05
    Revenue $4.84b $3.68B
    Net Income $546m $430M
    Earnings/Share: $.62 $.50

    (Slashdot keeps taking out the spaces, which is why this looks funky.) So, even though Dell has a little more than 3x Apple's gross sales, Apple is the more profitable company. Dell's profits dropped by 51% between Q2FY06 and Q2FY07, while Apple's profits reached new records. Moreover, Apple's profitability and market share are both increasing, while Dell's is decreasing.

    And Apple would want to outsource manufacturing to a much less profitable and quality-conscious company why?

    Crow T. Trollbot

  • Missing the point (Score:3, Insightful)

    by griffjon ( 14945 ) <> on Thursday October 19, 2006 @05:09PM (#16508359) Homepage Journal
    Apple's edge isn't OSX, it isn't the iPod, it isn't softly glowing lights, it's the overall style. Have you seen DELL's concept of "Style"? The big thing is to partner and outsource and break down a company into its core competency, well, I say Apple's core competency is style, and they have to keep all the parts that are intimately tied to their being able to deliver on the style. OBVIOUSLY, they are already outsourcing some of their manufacturing, or we wouldn't have viral-infected iPods floating around.

    The day I trust an analyst is the day I trust a politician.
  • by skingers6894 ( 816110 ) on Thursday October 19, 2006 @08:31PM (#16510893)
    Speak up, Steve can't hear you over the clanging of the cash registers.
  • by Ath ( 643782 ) on Thursday October 19, 2006 @08:47PM (#16511043)
    I happen to be a Gartner customer and find them to be very valuable in many areas. That being said, when you have thousands of analysts worldwide - many with opposing biases depending on their area of focus - it is inevitable that one of them will utter just about any prediction you can think of.

    In addressing the premise of the recommendation from this particular Gartner analyst, one has to wonder why a company would get out of a highly profitable area of their business while it is still highly profitable. The day may come when selling computers is not a good financial thing for Apple to do, but until that time I am pretty confident Apple will continue doing it.

    Of course, many of us also question the prediction for other reasons. First, Apple is not just in the computer hardware business. They sell an overall user experience. The unique design of the hardware and the software are components in that overall experience - each is not easily separable from the other. Second, Apple's current strategy has been extremely effective. They continue to increase market share in each segment they operate in. The line between the iPod and the Mac computer line is continuing to blur without risking the individual segments.

    It continues to amaze me that any analyst would be unable to comprehend that Apple's business model is not Dell's. Having not read the analysts actual report (too lazy to download it), I hope that he is only referring to the supply chain and manufacturing efficiencies that Dell is supposed to enjoy over other companies. However, I suspect that Apple is getting as efficient as Dell in these areas. If you look at their component inventory on-hand (at about 4-6 days), they seem to be quite good in their supply chain management. The earlier point that their margins may decrease seems a more salient point than to suggest that Apple would be any less capable of being able to profit from the computer business.

  • by zerofoo ( 262795 ) on Thursday October 19, 2006 @10:51PM (#16512037)
    In the 15 years i've been in IT, I have consistently been a white-box/Dell/HP/EMC guy. The current network I admin uses Dell servers and the 3 year old Dell workstations are on their way out. Guess what we are buying to replace the aging workstations? You guessed it - Macs.

    The ability to standardize on one platform for both Mac OS and Windows is great. The hardware is nicely designed, and seems to hold up better than Dell or HP.

    Still, Dell makes a nice server, and the re-branded EMC stuff is also nice....but who knows...the next Xserves may run never know.

    Apple's control over its hardware ensures quality. The miracle called Boot Camp will only increase Apple's market share. I hope an MBA doesn't screw that up.

  • they already have (Score:3, Insightful)

    by oohshiny ( 998054 ) on Friday October 20, 2006 @12:38AM (#16512729)
    Apple's machines are generally built by contract PC manufacturers in Asia; Apple already is largely only design, marketing, distribution, and some software development. Involving Dell would only increase costs for Apple.

The absent ones are always at fault.