A Fortune article I haven't seen posted here yet...
The PC's New Tricks
The PC world is in a funk. Consumers don't want new machines, businesses aren't upgrading, and Michael Dell is grabbing all the profits. So what's a rival PC maker to do? Sell new software, build new devices--and pray that innovation brings customers back. Soon.
fortune.com
Too long to include it all (and copyright <g>) but some interesting quotes...
Michael Dell, founder and CEO of Dell Computer, prefers not to say he's in the PC business. "I think of it as computer systems, or the IT industry," he explains. Mike Capellas, president of Hewlett-Packard, who was CEO of Compaq until the two companies merged, says, "We really have moved from the PC to a world of Internet access." And Ted Waitt, CEO of Gateway, is passionate about his company's latest product: a large-screen flat-panel TV.
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Says Charles Smulders, a top PC analyst at Gartner Dataquest: "This is a sick industry." But he's not entirely right. That particular group is sick for a reason that is expressed in one tiny syllable: Dell. No big company can build PCs more cheaply than the one founded by Michael Dell, and it remains profitable even as it scoops up market share from its rivals. Dell was designed to compete on price, and that's why it made $1.8 billion in profit last year on revenues of $31 billion.
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For Michael Dell, the less things change, the better. By keeping inventories small, expenses down, and prices low, he's been able to boost his company's worldwide PC market share from about 5% to almost 15% in the past five years. In the U.S. he's grabbed the top spot with 27% of the market. In these anemic times, he's been able to steal enough share from competitors to ensure that unit shipments will rise more than 8% in the quarter ending October compared with the previous quarter. Dell last month announced that it thinks it can double its current annual revenue of about $32 billion within the next five years or so.
Yet even Michael Dell has started to sour on the PC game. Volumes may rise, but prices keep dropping, which makes it tough to get the absolute dollar gains he wants. He probably can't double revenues on PCs alone. So Michael Dell is taking the logistics and distribution system he developed for PCs and using it to build and sell just about any information-technology product, from printers to storage to handhelds. Says Dell: "If you look at all the sectors--PCs, storage, software, peripherals, printers, networking--we have 3% market share across that, on average. So we have plenty of room to grow profitably, even if overall tech spending doesn't grow."
Now it's not only the CEO of every other PC maker who wants to strangle him. Even companies like networking-equipment maker Cisco Systems see his company as a threat. Because Dell is planning to start selling its own brand of printers and ink cartridges in partnership with Lexmark, HP has withdrawn its printer products from Dell's site. Cisco and 3Com also have pulled out of partnerships with Dell, as it ramps up sales of its own networking products. Yet Dell keeps expanding. "This quarter Dell will have record revenues," Michael Dell says. "No other computer company, including Cisco, Sun, EMC, IBM, Apple, HP, Intel--name your company--is expected to have peak revenues again for at least two years."
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This doesn't mean Dell is about to take over the world. As the companies jockey for position, HP retains advantages. For one thing, in a time when growth is faster outside the U.S., HP is much more global. Only 42% of its PC sales are in the U.S., vs. 64% for Dell, says Smulders. HP remains a much larger company, with other highly profitable products like printers (it has 50%-plus market share), so it could afford, at least for a while, to sacrifice PC margins in a price war. And HP is well established in areas Dell is only starting to penetrate, like storage, where HP's market share is about 40%. At HP they like to claim that Dell is overreaching, "like when Napoleon invaded Russia," as one executive puts it.
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As each of the PC players tries to invent its way out of the rut, the two companies working the hardest to revive the industry don't make boxes at all: Microsoft and Intel. Instead, they make the fundamental underlying technology, and also most of the industry's profit--last year $8 billion and $1.3 billion, respectively. Now they're trying to get the industry going again. They have long done most of the R&D for PCs. Microsoft last year spent $4.3 billion on research, Intel $3.8 billion. (Dell spent just $321 million.)
"The PCs we have today are pretty pathetic compared to what I envision," says Jim Allchin, who oversees operating-system development at Microsoft. In contrast to those who say PCs have too much processor power today, he complains they don't have nearly enough. He'd like PCs to be so powerful that they would understand the meaning of spoken or typed-in text--a capability called "natural language understanding"--or support three-dimensional visual interfaces. He also wants longer battery life for laptops, lower noise levels, and so-called nonvolatile memory so that you could switch on a computer and start using it instantly.
Allchin makes no secret of his impatience with PC hardware companies, which he seems to think aren't showing sufficient initiative in product design. Though he won't come right out and criticize by name, he does say, "I've written to my friends at different places and told them this is my dream. Are we going to get on this?"
I think the HP quote is my favourite. They should remember what happened to the Russian emperors... |
