DELL - Dell Inc.

[Guest valueInv]

Some more bad news for the pc:

 

http://gigaom.com/mobile/of-course-pc-sales-are-in-decline-mobile-is-where-its-at/

[Parsad]

Ballmer - Microsoft will be more like apple. This could impact DELL in a big way.

 

http://news.yahoo.com/microsoft-ceo-sees-company-becoming-more-apple-002521396--finance.html

 

This is a known risk that everyone has talked about for a while now.  That's why DELL is shifting from EUC to ES&S, of course.

Ok, let me break it down then:

 

Txlaw,, this is the link you posted on the other Dell thread:

 

http://www.pcworld.com/article/2010574/michael-dell-on-surface-tablet-the-impact-will-be-limited.html

 

Thanks for trying to pull a gotcha by referencing something in another thread that's taken out of context.  I appreciate that.  ;)

 

In response to shalab's post, I was referring to the more general risk that MSFT starts to be "more like Apple" and bundle hardware and software together for all of its products, thereby cutting out OEMs altogether.  Note, however, that in a subsequent post, I specifically stated that I suspect MSFT will be more friend than foe to a DELL.

 

Surface by itself is not a thread to a DELL or HPQ or IBM because it is intended to spur adoption of the Windows ecosystem, which at the moment still relies on OEMs.  Surface is the high end Win 8 device intended for consumers who actually want to also get stuff done (iPad doesn't cut it).  Surface may or may not be included as part of business packages -- it may be that businesses buy both lower end Win 8 tablets and Surface devices depending on the applications.  But when it comes to BYOD for non-smart phones (yes, ValueInv, it's true), we might start to see consumers latching onto Surface, which could help protect MSFT's share of business computing from the Apple onslaught.  That's not a bad thing for OEMs.

 

Btw, that Dell interview isn't really focused on Surface.  In fact, Surface is mentioned once in the interview.  I have no control over the title of the article.  The more interesting and useful takeaway from the article that I was intending for people to get was Dell's focus on transformation and adaptation.  Folks, take a look at the actual post I made and the sections of the interview I highlighted if you don't believe me:

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/for-you-believers-in-dell/msg87166/#msg87166

 

Also, if anyone is interested on a good discussion that VAL and I had about MSFT Surface, see http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/msft-rim-and-the-enterprise-%28and-intel%29/ .  We talk about INTC, ARM, thin clients, Android, and more.

 

Ok, let me break it down for you:

 

Michael Dell:

 

PCW: Microsoft is getting into the computer hardware business via its Surface tablets. Is this good or bad for OEMs in general, and what's your take on the impact of Microsoft's hardware aspirations on Dell specifically?

 

Dell: I think the impact will be limited, given the number of units they expect to ship. Microsoft developed the product largely as a reference architecture—to set a baseline for Windows 8 user experience. We’re aligning a significant portion of our product development with Windows 8, and we think it offers some great, new capabilities. Anything Microsoft does to support faster Windows 8 adoption is fine by Dell. However, our focus is less on their plans and more on designing and delivering compelling Dell products and solutions.

 

Steve Ballmer

This is a significant shift, both in what we do and how we see ourselves — as a devices and services company

 

So do I need to point out the disconnect?

 

You do realize that Windows relationship with it's PC developers is symbiotic...unlike Apple where they retain full control of their OS and develop their own PC's.  It's why there is a twenty-fold difference in the number of Windows PC's and Apple Macs sold.  If Microsoft tries to cut out the likes of Dell, HP, IBM, etc, what do you think that will do to that ratio? 

 

Apple's sales of Macs will continue to increase, simply because more consumers will want uniformity across their various platforms (phone, tablet, pc and television).  But Microsoft will only help Apple grow faster if they undermine their relationships with PC manufacturers...and thus my comment of an idiot running Microsoft for the last seven years!  Cheers!

[Palantir]

MSFT is moving away from its OEMs because it has to given the changes happening in the industry, and the OEMs themselves are looking to wean themselves off this MSFT-centric relationship. Ballmer knows that the relationship with OEMs is not as profitable as it used to be and is thus moving to take control of the supply chain. I think it's a great decision.

 

Ballmer has his strengths and weaknesses, he's not a product guy, but he's brilliant as a thinker. With Windows 8 and Metro, he has been totally uninvolved and allowed his developers total freedom in developing it and early signs show really good results IMO.

[ItsAValueTrap]

If you look at the history of the computer market, it has moved AWAY from vertical integration.  The mainframe business used to be vertically integrated.  Now it isn't and the companies that stuck to vertical integration died off.  Wang made a word processing machine and was a vertically integrated business... it's dead now. 

 

Apple is one of the few remaining players with some sort of vertical integration.  (Ok, technically it doesn't assemble its own hardware.)

 

The limited number of hardware choices makes the Mac platform easier to develop for IN THEORY.  In practice, developing apps for Windows desktops is far easier than Macs as Microsoft has FAR better development tools than Apple.  There's a reason why Photoshop on Mac lagged the PC in coming out with a 64-bit version.  (I used to develop Photoshop plugins.  Apple is annoying.)  And then there's the whole market share thing which gives Windows an advantage.

On the smartphone side, apparently iOS is easier to make games for than Android.  Some game developers are frustrated by the hardware on low-end Android phones and their bugs... some of them no longer make games for Android.

 

Anyways if you read Bill Gates' book The Road Ahead, it seems highly unlikely that Microsoft will go the route of a closed hardware system like Apple has.  BillG notes that IBM couldn't sustain its profits over the long run even though it invented the IBM-PC, whereas Intel and Microsoft was able to do it.  I think what Microsoft is doing is making sure that there is decent hardware for its software to push the adoption of its software.  I could even see them subsidizing the hardware manufacturer's R&D costs by sharing their hardware designs.

I think Intel is doing something like this in its smartphone reference design.

 

With Windows 8 and Metro, he has been totally uninvolved and allowed his developers total freedom in developing it and early signs show really good results IMO.

Ummm.... a lot of folks are going to be pissed and frustrated by the new user interface.  Windows 8 is moving towards becoming a dual-purpose OS that also works on tablets as well as the desktop/laptop... it's a bet on technology that may make it frustrating for the desktop user.

 

This might turn out to be similar to Windows Vista.  Vista was *really annoying* because Microsoft started to work on improving security.  Many people went out of their way to get Windows XP instead of Vista... or held off upgrading for that reason.

[txlaw]

With Windows 8 and Metro, he has been totally uninvolved and allowed his developers total freedom in developing it and early signs show really good results IMO.

Ummm.... a lot of folks are going to be pissed and frustrated by the new user interface.  Windows 8 is moving towards becoming a dual-purpose OS that also works on tablets as well as the desktop/laptop... it's a bet on technology that may make it frustrating for the desktop user.

 

This might turn out to be similar to Windows Vista.  Vista was *really annoying* because Microsoft started to work on improving security.  Many people went out of their way to get Windows XP instead of Vista... or held off upgrading for that reason.

 

This is a good point, and it makes me wonder whether DELL is right that we are halfway into the Win 7 refresh cycle.  I have been skeptical, but it is entirely possible that business will look at Win8 and say, nope, we'll upgrade to Win 7 and wait a while for the kinks to be worked out.

[ItsAValueTrap]

Thinking aloud here...

 

Maybe the good part of Dell is the hardware retailing/distribution business, and the bad part of Dell is the services and software business?

 

On the hardware side, Dell has seen its margins erode as competitors are starting to mimic Dell's low-cost practices (e.g. sell direct to the customer).

On the hardware side for corporate customers, I think that Dell will be a market share leader for a long time.  Dell is good at what they do in that space.  If you need a huge volume of low-cost desktops with identical hardware, it makes sense to go with Dell.

I don't see a moat here as Dell has to compete against money-losing competitors (e.g. Acer) and they have to cut their prices to compete.

On the somewhat good side, you see a lot of players rushing to the higher-margin markets like servers.  Virtualization of desktops in the corporate space should really help Dell sell powerful and expensive servers.

 

On the services and software side, Dell has been making some acquisitions at ridiculous valuations.  It has paid huge multiples for Perot, Compellent (this used to be public), Quest (this is public), etc.  And you see the leader of the services side (Shuckenbrock) selling his shares.

Revenue growth has been fueled by pricey acquisitions.

*I'm not sure if Compellent is considered software.

[bargainman]

 

Bit off-topic but... why is Ballmer looking at Apple? MSFT isn't Apple in terms of being visionary, innovative, ... Does anyone really have faith that Ballmer will have great success in selling hardware? He refers to xbox but that is a total dud profitwise.

 

Can you name any other hardware product not made by Apple that isn't?

[Guest valueInv]

You do realize that Windows relationship with it's PC developers is symbiotic...unlike Apple where they retain full control of their OS and develop their own PC's.  It's why there is a twenty-fold difference in the number of Windows PC's and Apple Macs sold.  If Microsoft tries to cut out the likes of Dell, HP, IBM, etc, what do you think that will do to that ratio? 

 

Apple's sales of Macs will continue to increase, simply because more consumers will want uniformity across their various platforms (phone, tablet, pc and television).  But Microsoft will only help Apple grow faster if they undermine their relationships with PC manufacturers...and thus my comment of an idiot running Microsoft for the last seven years!  Cheers!

 

Now you see why I think the next two years are going to be good for the Mac and the Apple ecosystem?

 

I bought Microsoft because I believed they had a margin of safety. However, their recent actions with both Windows 8 and Surface have me questioning that thesis.

 

My very wise B-school professor used to say, "Strategy is about commitment". MSFT is trying to get partners invest in its platform while at the same time competing with them with its own devices. Its trying to have its cake and eat it too. It ends up on the fence between two strategies. They need to pick one and commit to it. They are throwing their entire ecosystem in disarray. They kept Surface a secret from their partners till the last moment. They screwed Nokia with the Windows 8 release. Now Ballmer sends a message saying that they're fundamentally shifting their place in the ecosystem. Maybe Ballmer didn't get the memo about the "symbiotic" part.

 

[bargainman]

One comment about MSFT and INTC in relation to this.  The thing about margins is that they basically held a 'duopoly' of sorts in this industry.  Essentially they made all the profits while everyone else had to run a super lean efficient (read: low profit margin) business.  So now they are in trouble in part because of this.  None of their partners can compete with Apple since they both can control the whole experience, and can't really innovate since their profits are so tight.  MSFTs attempt to get into hardware is an acknowledgement that they can't keep grabbing all the profits from the ecosystem without starving it.

 

The interesting thing is that Apple is basically doing the same thing wrt margins.  But they are doing it by starving all the manufacturers of the hardware, not the design and software...

[Guest valueInv]

One comment about MSFT and INTC in relation to this.  The thing about margins is that they basically held a 'duopoly' of sorts in this industry.  Essentially they made all the profits while everyone else had to run a super lean efficient (read: low profit margin) business.  So now they are in trouble in part because of this.  None of their partners can compete with Apple since they both can control the whole experience, and can't really innovate since their profits are so tight.  MSFTs attempt to get into hardware is an acknowledgement that they can't keep grabbing all the profits from the ecosystem without starving it.

 

The interesting thing is that Apple is basically doing the same thing wrt margins.  But they are doing it by starving all the manufacturers of the hardware, not the design and software...

Apple takes away margins but they give their suppliers upfront cash and even pay for capex. They also give them huge volume. Not too long ago, Apple used to buy half of the worlds Flash memory supply.

 

[Palantir]

If you look at the history of the computer market, it has moved AWAY from vertical integration.  The mainframe business used to be vertically integrated.  Now it isn't and the companies that stuck to vertical integration died off.  Wang made a word processing machine and was a vertically integrated business... it's dead now. 

 

Apple is one of the few remaining players with some sort of vertical integration.  (Ok, technically it doesn't assemble its own hardware.)

 

 

 

Good point. I think most agree that MS's foray into hardware is going to be along the lines of creating a flagship product that will show their interpretation of what the product should be like. The fact that they are competing with their partners may not really be that big of a deal as it seems that MS tends to do that in many different markets.

[prevalou]

GOOGLE does the same vertical integration with Motorola

[Guest valueInv]

If you look at the history of the computer market, it has moved AWAY from vertical integration.  The mainframe business used to be vertically integrated.  Now it isn't and the companies that stuck to vertical integration died off.  Wang made a word processing machine and was a vertically integrated business... it's dead now. 

 

Apple is one of the few remaining players with some sort of vertical integration.  (Ok, technically it doesn't assemble its own hardware.)

 

 

 

Good point. I think most agree that MS's foray into hardware is going to be along the lines of creating a flagship product that will show their interpretation of what the product should be like. The fact that they are competing with their partners may not really be that big of a deal as it seems that MS tends to do that in many different markets.

 

I don't think they need to release or sell their own device to show what the product should be like. Google has been putting out reference products by working with partners for a while now - the Nexus devices. You don't need to compete with partners to put out a reference design.

 

There are also indications of MSFT releasing their own smartphone. Nokia's Lumia phones are already considered some of the best hardware in the market. It is not failing because of design issues i.e. there is no need for a reference design. Further,I don't think MSFT is going to top the Lumia with its own design.

[Guest rimm_never_sleeps]

every surface tablet that msft sells represents one that dell doesn't. MD simply repeated the talking points. in fact it often sounds like MD is reading from a script prepared exclusively for him. it's the obvious thing for the ceo of dell to say in that situation.

[tombgrt]

 

Bit off-topic but... why is Ballmer looking at Apple? MSFT isn't Apple in terms of being visionary, innovative, ... Does anyone really have faith that Ballmer will have great success in selling hardware? He refers to xbox but that is a total dud profitwise.

 

Can you name any other hardware product not made by Apple that isn't?

 

I can and assume you can as well? What is your point?

[bargainman]

 

Bit off-topic but... why is Ballmer looking at Apple? MSFT isn't Apple in terms of being visionary, innovative, ... Does anyone really have faith that Ballmer will have great success in selling hardware? He refers to xbox but that is a total dud profitwise.

 

Can you name any other hardware product not made by Apple that isn't?

 

I can and assume you can as well? What is your point?

 

Actually I can't really.. At least nothing comes to mind.  Maybe some of Samsung?  Most hardware vendors I know of have incredibly tight margins and make very littl money.  One of my points was that XBox was about getting into the living room so they could sell software and services.  Apple is really the only company that makes massive margins on the entire package, in particular hardware.  Everyone else loses money or has massively tight margins.  Or in the case of Amazon, and maybe XBox, sells the hardware as a loss leader to get you into their environment.  Of course I think MS is losing money overall on their xbox division, so their strategy is not working yet...

[Guest rimm_never_sleeps]

massive is the wrong word. they make "relatively" high margins of 40%+. in fact Intel makes hardware and has always had 50%+ gm.

[bargainman]

massive is the wrong word. they make "relatively" high margins of 40%+. in fact Intel makes hardware and has always had 50%+ gm.

 

semantics :-)  For a hardware device, Apple's margins are massive.  Compared to a software company perhaps not. 

 

That said, wrt Intel:  I didn't mean "hardware components",  I meant hardware as in the end product.  As I mentioned earlier on this or another thread, Intel and MSFT have sucked all the margins out of their ecosystem, leaving the other players to live on razor thin margins.  Basically I can't think of a company with its name on a hardware device that ends up in the mass consumer/pro market that makes money or that has anything other than razor thing margins.  Here's a case in point:

 

http://news.cnet.com/8301-1023_3-57530924-93/amazons-jeff-bezos-admits-kindles-are-sold-at-cost/

[VAL9000]

every surface tablet that msft sells represents one that dell doesn't. MD simply repeated the talking points. in fact it often sounds like MD is reading from a script prepared exclusively for him. it's the obvious thing for the ceo of dell to say in that situation.

 

This isn't true.  The total market for a product segment grows when new competitors enter the fray.  Two companies offering the exact same product would still grow the market based on more subtle differentiators like distribution channels.  So no, a tablet sold by MSFT does not result in one not being sold by DELL.  What Microsoft is releasing is a hardware companion intended to showcase Windows 8 as they envision it.  Microsoft really has no other option.  Apple's approach of coupling hardware and software means that in order to compete, Microsoft must tighten the integration of their software offerings with hardware intended to take advantage of new features.  This "reference hardware" approach gives manufacturers a sample of what can be done.  A little like how the iPhone was a reference design for Samsung's series of phones, although I doubt very much that Microsoft will sue the pants off of Samsung if they make a Surface knock-off.  If they did not go this route, innovation in hardware could only begin after Windows 8 had reached a late beta / RTM form, which could delay the introduction quality products by months if not years.  It's a competitive response, but not targeted at Dell, it's targeted at Apple.

 

Michael Dell is exactly right when he talks about how they should respond to what Microsoft is doing.  They each need to make the best product that they can make for the businesses that they are in.  What else would you expect them to do?

 

[Guest valueInv]

every surface tablet that msft sells represents one that dell doesn't. MD simply repeated the talking points. in fact it often sounds like MD is reading from a script prepared exclusively for him. it's the obvious thing for the ceo of dell to say in that situation.

 

This isn't true.  The total market for a product segment grows when new competitors enter the fray.  Two companies offering the exact same product would still grow the market based on more subtle differentiators like distribution channels.  So no, a tablet sold by MSFT does not result in one not being sold by DELL.  What Microsoft is releasing is a hardware companion intended to showcase Windows 8 as they envision it.  Microsoft really has no other option. 

Take a look at what Google does with the Nexus devices. That's MSFT's other option. Plenty of companies have released reference designs for decades without competing with their partners. All chip companies do it. Intel does not need to sell a PC to consumers to teach Dell how to design PCs.

 

Also, read Ballmer's statement in the letter to shareholders. Releasing reference hardware in not a "fundamental shift" making MSFT a "device and services" company. How much clearer does he have to be?

 

Think about why MSFT kept surface a secret till three days before the launch? Does that sound like the behavior of a company trying to encourage partners with a reference design?

 

http://hothardware.com/News/Microsofts-Surface-Could-Kill-HP-Dell-Other-PC-OEMs/

[VAL9000]

Take a look at what Google does with the Nexus devices. That's MSFT's other option. Plenty of companies have released reference designs for decades without competing with their partners. All chip companies do it. Intel does not need to sell a PC to consumers to teach Dell how to design PCs.

This is a fair point.  It could be that Microsoft decided to develop the offering independently because they didn't want to play favourites, but I'm just speculating.  I still believe that they're looking to control the reception of Windows 8 by releasing it alongside the "perfect" device.  They're trying to change the market's perception of what a PC is (i.e. something other than John Hodgman).

 

Also, read Ballmer's statement in the letter to shareholders. Releasing reference hardware in not a "fundamental shift" making MSFT a "device and services" company. How much clearer does he have to be?

 

Think about why MSFT kept surface a secret till three days before the launch? Does that sound like the behavior of a company trying to encourage partners with a reference design?

 

http://hothardware.com/News/Microsofts-Surface-Could-Kill-HP-Dell-Other-PC-OEMs/

So you're suggesting that Microsoft's goal is to supply 100% of the 350mm PC market's hardware needs?  And this is why Dell should be concerned?  Is this a realistic approach for Microsoft?  Just think about this monumental effort, and what the marginal payoff would be.  Think about the disastrous competitive response they would introduce if today's hardware manufacturers thought their #1 partner was moving against them.  Remember that these are the same partners that create the hardware needed to run all of Microsoft's server software, too.

 

Surface was kept secret from everybody, not just hardware partners.  This was probably more about keeping Apple and Google in the dark than anything else.

 

Finally, if Microsoft were serious about selling PCs, then they would probably start by pushing Surface through a channel other than their Microsoft stores.  I doubt that channel could handle more than 5 million devices in a year (<2% of the PC market).  By comparison, Apple sold about 20mm iPads its first year and they had 10x as many stores, a significant online presence, and thousands of non-Apple retail sales locations.

 

[Guest valueInv]

You do realize that Windows relationship with it's PC developers is symbiotic...unlike Apple where they retain full control of their OS and develop their own PC's.  It's why there is a twenty-fold difference in the number of Windows PC's and Apple Macs sold.  If Microsoft tries to cut out the likes of Dell, HP, IBM, etc, what do you think that will do to that ratio? 

 

Apple's sales of Macs will continue to increase, simply because more consumers will want uniformity across their various platforms (phone, tablet, pc and television).  But Microsoft will only help Apple grow faster if they undermine their relationships with PC manufacturers...and thus my comment of an idiot running Microsoft for the last seven years!  Cheers!

 

Now you see why I think the next two years are going to be good for the Mac and the Apple ecosystem?

 

I bought Microsoft because I believed they had a margin of safety. However, their recent actions with both Windows 8 and Surface have me questioning that thesis.

 

My very wise B-school professor used to say, "Strategy is about commitment". MSFT is trying to get partners invest in its platform while at the same time competing with them with its own devices. Its trying to have its cake and eat it too. It ends up on the fence between two strategies. They need to pick one and commit to it. They are throwing their entire ecosystem in disarray. They kept Surface a secret from their partners till the last moment. They screwed Nokia with the Windows 8 release. Now Ballmer sends a message saying that they're fundamentally shifting their place in the ecosystem. Maybe Ballmer didn't get the memo about the "symbiotic" part.

 

Like I was saying:

 

http://online.wsj.com/article/SB10000872396390443624204578058892291378504.html

[txlaw]

It looks to me like corporate users will continue to upgrade to Win 7, as DELL has been saying all along.  Win 8 devices like Surface will be aimed at getting consumers on board the Windows ecosystem, and we might see Win 8 upgrades in business after the kinks have been worked out with the new UI, and after people have gotten to play around with it and get used to the changes. 

 

The reports of the OEMs' deaths are greatly exaggerated.

[txlaw]

Surface is being priced at $500 without the keyboard. 

 

Clearly, it is the high end consumer market MSFT is focusing on.  I wonder whether they will offer it in channels other than the MSFT stores.

[txlaw]

Surface is being priced at $500 without the keyboard. 

 

Clearly, it is the high end consumer market MSFT is focusing on.  I wonder whether they will offer it in channels other than the MSFT stores.

 

The RT version is the one being priced at $500 (without the keyboard).