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What BS

So, Dell released its earnings last evening and things didn't go so well at the computer giant. Bottom line net income came in on target, however revenues were $300 million short. They also guided slightly below consensus for the next quarter, saying revenue should be between $14.1 and $14.5 billlion, below the $14.6 billion expected. In any case, the stock got punished today, falling more than 7%.

On the other hand today, Apple stock hit a new all time high amid rumours that Google will be launching an iTunes integrator into their search engine somehow. So let me get this straight, Dell's revenue missed by 2% and they guided slightly lower and thus got hit more than 7%. Apple had some rumours to float off of and gained almost 5%. You'd think people are favoring Apple a bit these days huh? Take a look:

Apple Bucks Tech Selloff

I especially enjoy the part where he says this, "Investors kind of have the attitude that Dell's weakness is Apple's strength." Now why would that be? Dell is habitually quite a bit stronger than other PC makers. So if the market's doing well, you can bet Dell's cashing in. If Dell's weak, you can bet your socks that the rest should be weak as well. If people aren't willing to spend $500 on a Dell, do you think they're more likely to spend $1500 on an Apple? I don't think so.

Also Dell and Apple, while both being in the relative same industry, are almost non-competitors. The people who buy Apple are, for the most part, Mac enthusiasts with a few entering because of iPod frenzy. Dell on the other hand aims squarely at the budget to mid range computers with some high end computers to round out its product line. The reason Dell missed its revenue targets is because their average selling prices dropped due to discounting. I hardly think Apple benefitted from Dell's revenue miss because Dell sold more PCs than ever before at 9.1 million units this past quarter. Apple is selling about 1 million Macs per quarter. It's hardly that people are switching over to the Mac Mini which was supposed to grow Apple market share exponentially. Mac Minis still cost in the range of $700USD (at least) when you add a keyboard, mouse, monitor and speakers to it. Dell sells a buttload at anemic prices, many times less than $399USD for a complete package. So in terms of price, there's still no competition between Dell and Apple and that's where the problem lies. Dell is selling at too low prices hoping it would entice more people to buy. Unfortunately not as many did as they hoped. However revenue was still up 15% over the same quarter the previous year. Mid teens revenues growth for a company the size of Dell is something many CEOs would sell their souls for.

Dell's business model is unparalleled by any other computer company in the world. It is the epitome of efficiency and that's how they can make any money at all from their nosebleed-low prices. You'd think they'd make very little, but in fact Dell's operating margins (basically percent of revenue that remains after taking out all operating expenses) are the second highest in the computer industry, after Apple which enjoys gouging the eyeballs out of unsuspecting customers. Where other computer makers consolidated (IBM selling its devision to Lenovo, HP and Compaq merging and Gateway acquiring E-Machines) Dell has relied on its business model to spur growth. Quarter after quarter it has been tearing market share away from the other computer companies while growing revenues and net income.

It's sometimes befuddling how people think. If Dell can fall 7% on a slight miss, I can only imagine what will happen to Apple when its iPods go down the drain. It's inevitable as people get more educated. They'll see soon enough that adding a click-wheel isn't a world changing event and thus doesn't force you to buy a new MP3 player. And it is the iPods and speculation of growth od iPod sales that are propping the stock up.
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Blogger Rene wrote at 8/12/2005 11:26 PM

Long live Apple/Steve Jobs!

And I find your people funny. You repeatedly profess the "iPod killer" yet no one has dethrowned it yet. Why? Because, even though there are players out there with features the iPod doesn't have, like FM tuner - because people prefer to hear commercials, DJ's and music they don't like over their own hand picked favorite music. But I digress, having extra features the iPod doesn't have doesn't mean it's going to win, why? Because these companies need to realize two things:

1) The iPod is easy. My mom can work one and that's saying something as she's completely computer illeterate (she needs help turning the monitor on). The click wheel is the easiest way to control your music on any player, and the GUI is impeccable. It's very straightforward and you don't need to go through 7 different menus to play the song you want. And

2) iTunes. It's sold the most, it has the most, it gives the most. Plain and simple. The iPod and iTunes work together better than Ben Affleck and Matt Damon.

There are products out right now that have a ton of do hickey's and gizmo's the iPod doesn't have, yet they haven't detered people away from it yet have they? And guess what? They never will until they learn to make something that is super easy to use. You mentioned it yourself a few posts back, the largest market out there is the market that needs things that are easy and auto-updating, and that's what the iPod is. Why do you think the shuffle's the #1 flash player out there? It's scarce on features, yet anyone with a thumb can work it. The fact that it has no screen is it's strong point because there are no confusing sub-menu's to navigate through, you just stick in the earphones click your thumb and you're all set.

Companies need to realize that extra features won't eat away at Apple's enormous 75% market share, but ease of use will. Even if they do figure that out, there's still the iTunes feature they need to get over as it truly is the easiest, least confusing way to buy music. I imagine you heard that Napster lost money on their subscription service and that in 4 days Apple sold 1 million songs in Japan, 4x as much as the former #1 would sell in a month.

Oh yes, people are going to start leaving the iPod in droves...    



Blogger Charlie wrote at 8/12/2005 11:53 PM

The IPod is easy as hell to operate and I will say that along with the trend, is what's pushing iPod sales to new heights. But did you notice that iPod sales have recently (past year or so) jumped up quite a bit for almost no reason? That sounds like a bubble to me. Apple's getting a lot of attention right now. The cool gadget to have would be the iPod mini as everyone and their dog it touting it. I don't see people leaving iPod in droves, instead I see them seeing no reason to buy another and another. Like myself. I bought one, saw what it's all about and I moved on. I guess what I'm saying is, in the future if Apple doesn't do something new (I don't consider the click wheel new) like really new and inventitive, people will move on to other players.

For the most part, competing companies are just being stupid. Anyone with a brain could see that the interfaces aren't as clean and user friendly as the iPod. I personally think the designers should be fired or something. Anyways, the biggest competition I think Apple will have in the MP3 player market will be Samsung. They have the resources (much greater than Apple) and the technical know-how to build a player that's every bit as good as the iPod. I played around with their 5GB one and I have to say it was pretty decent. The software unfortunately sucked ass, so they'll have to fix something there.

Keep a watch out Rene, I'm working on a few articles actually about the MP3 player market and a few reviews of MP3 players that I've got here.

Oh and did you hear? Microsoft's supposedly launching MP3 players this fall. But then again knowing Microsoft it's gonna be mediocre at best and confusing to use. (for Apple nubs of course! ;) )    



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