A sedate Dell posted fourth quarter results that didn't horrify investors even though its PC and notebook sales fell in dramatic fashion. Dell reported USD 14.4bn in revenue down from USD 15.2bn in the same period last year. The company's net income came in at USD 673m, which marks quite the fall from last year's haul of USD 1bn. Officials declined to face off against financial analysts and discuss the results in a conference call as is customary, primarily because Dell counts its fourth quarter results as 'preliminary' due to a pair of investigations into its past accounting.
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Member since:2005-10-12
There are three lessons here.
One is the lesson of Dell, That is that if you execute badly in a given business model, in their case by failing to accept the logic of their position, your competitors will eventually start to gain market share at your expense.
The second is the lesson of the eighties and nineties. That was that for the computing industry, the vertical model in the sense of Apple circa 1990 is dead.
That vertical model was proprietary and incompatible everything. The bus, the graphics, the peripherals, the OS, the software. The obituary was finally published when Apple moved to Intel, but it had been dead since the 4400 when Macs first had PCI slots and IDE drives.
The third lesson is that market share plotted against profitability is not a straight line function. At the low end, if you stick around, you are probably in a niche with all that implies - you're different, and in ways that matter to your customers. Whatever we think of Apple, this is clearly the case. It allows premium pricing and high margins.
At the high end you will also be profitable because of economies of scale.
Dell had fallen into a situation which one has seen in other areas - Marks and Spencer in the UK fell into this one too - where it is no different from anyone else, but also no bigger. If management in such a situation fails to accept the reality of their position and attempts to keep up margins over those of competitors by reducing costs or raising prices, the result will be inferior products and eventually falling share. But if they accept it, there is no reason why they should not run a company very successfully for both customers and shareholders for many years. This is basically how life is for most companies in mature industries. The returns are average but adequate, the products and support perfectly acceptable, and they always used to pay dividends.
But their managements have had to give up the fantasy of being high margin growth companies. Which is a painful process for them, and sometimes their customers too.
We will know that Dell and MS have fully reconciled themselves to the realities of life in a mature industry when they start paying dividends. Look forward to it.
As to Michael Dell's famous advice, this is how to assess it. Find out how much a dollar invested in, say, the S&P, would be worth today. Then find out how much a dollar invested in Apple would be worth today. Then adjust for risk. The question is: what was the difference in risk adjusted rate of return. It would also be interesting to plot this over time: how long did the Apple investor have to wait from the time of his prescription, before risk adjusted returns were in Apple's favor?
Its left as an exercise for the reader. The answer to the last question however is, a lot of years.
Member since:
2005-07-06
Based on what evidence? their computer shipments are growing at double digit rates, yes they're selling more iPods but that is due to the cheap, disposable nature of them, they're upgraded along more willingly than say a computer which costs around 3 times the amount.
So far from my tracking of Apple they have gone from shipping *only* 4million Macs per year to a situation where they're going to get to 8million soon and continue growing.
I have to admit, I've always been a fan of the vertical model - it may not be the 'cool' thing for the wall street types who seem to have wet dreams over buzz words but it seems that if you look at the companies who focus on the customer and market their products to buggery rather than blathering on about so-called 'new business models' are the ones which succeed in the end.
Edited 2007-03-03 00:03