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%."

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Check out their stock performance

[Cr0w T. Trollbot]

Here's a comparison of Apple's stock vs. Dell's stock over the past five years.

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

Re:Apples to Apples

[SydShamino]

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.

Re:Apples to Apples

[Wellspring]

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".