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Apple - What A Difference Eight Years Can Make
conq writes "It's been eight years since Michael Dell was asked after a speech at a Gartner conference in Orlando what he would do if he were in charge of Apple Computer. His answer: Shut the company down and give the money back to shareholders. BusinessWeek in its new Byte of The Apple Blog looks at how the tables have turned since then. For example, over the last four quarters Dell has been coming in with a net profit margin of about 6.5%. Meanwhile Apple just finished its fiscal 2005 with a profit margin just shy of 9.6%."
Buying Apple five years ago would have netted you a 450% profit. Buying Dell five years ago would have netted you...a small loss.
Crow T. Trollbot
Actually, I'm going to take my comment back. It's not that the apple computers aren't selling well. The point I wanted to make is the turnaround in company performance has MORE to do with the iPod peformance. Not just from a sales standpoint, but an image standpoint.
FWIW, from the latest 10-Q, sales this quarter compared to the same quarter last year show that desktop sales increased 65%, laptop sales increased 8%, and iPod sales increased 616%(!!).
link to the 10-Q: http://media.corporate-ir.net/media_files/irol/10/ 107357/reports/10QQ3FY05.pdf
Apple may be doing well in the home computer market. But if you're going to compare the two of these companies, consider the corporate market as well.
Dell can afford to sell its home computer stuff so cheap because it's making more money on the high-end stuff. Don't forget, Dell produces (or at least brands) backup systems, storage solutions, servers, racks, etc. You name it, Dell makes it for your business. They have captured a ton of that market, and their sales structure for businesses of all sizes makes it easier to buy there again.
So I think financially, Dell is doing very well...when you consider that solid corporate market.
Pretty soon, cutting costs comes at the expense of things like customer service, R&D, and other things that are required to maintain a viable, growing business.
Pretty soon? R&D is the first thing they cut when things go bad. Heck, I even watched a television show about Dell that explained precisely this as their corporate strategy.
I was offered an R&D job at Dell when I graduated from college years back. I am so glad I didn't take it; I would have been layed off in less than a year when the 2001 recession took effect. Instead I work for a company that invested in R&D through the recession and is now reaping those benefits.
It doesn't hurt to be nice.
Dell moved in the direction of building a commodity product-- that is, he wanted what economists call "perfect competition" where products are interchangable and people are cost-sensitive. Then his excellent supply chain let him undercut everyone on price and still make a tidy profit.
In a perfect competition game, low costs are EVERYTHING. You stick to open standards and off the shelf components. With high volume from having the best price, you get the volume you need to improve your costs even further through economies of scale. Not alot of profit per box, but LOTS of boxes.
Apple's strategy has been what economists call "monopolistic competition", where products are imperfect substitutes for one another, and buyers are willing to pay a premium to buy a product that better suits their needs. Apple's high quality, feature-rich, very fashionable product is a luxury item.
Apple's costs are high, but their prices are even higher-- giving them those very nice profit margins. In a luxury item game, your only challenge is when others try to imitate you at the top end of the market-- something that Apple's proprietary software helps protect them from. You don't need alot of market share to win at that game.
I'm a big fan of Gil Amelio-- his reforms helped get apple back on track, and I think Jobs took much of the credit because he was around when Amelio's reforms started to pay off. But Jobs and Jobs alone deserves credit for building the boutique business that took Apple from "no longer in danger of collapse" to "no longer in danger of mediocrity".
It may sound arrogant, but it's entirely possible that Mr. Dell really had it right -- Apple's making 9.6% profit margins today, but certainly hasn't for that entire eight years. The real question isn't "how well is Apple doing right now?", but "would the stockholders be better off if they'd invested elsewhere?"
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a v=true&pg=ch&symb=AAPL&time=7yr&compidx=aaaaa~0&co mp=DELL&ma=0&maval=60&freq=1dy&type=2&uf=0&lf=1&in d_compind=
Actually, if you look at any period in comparing their stock up to today, unless you bought Dell nine years ago or earlier, Apple's stock has performed better. Plug in whatever time period you like.
http://money.cnn.com/quote/chart/chart.html?shown
http://money.cnn.com/quote/chart/chart.html?shown
etc.