by , 2:00 PM EST, January 17th, 2001
As we wait for Apple's fiscal 1st Quarter results today, we can amuse ourselves with the latest from Bear Stearns. Normally we do not treat their utterances with disdain, but this time they are being a bit silly. The company has released some advice for the PC industry with an overall message of consolidation. Their advice Apple: Dump the PowerPC processor and go with Intel. Their advice to everyone else: Buy the competition or get bought. According to Bear Stearns:
Now is the time for personal computer makers to take action or face years of disappointing results, according to Andrew Neff, Bear Stearns senior managing director and PC hardware analyst. Neff believes the PC industry is at a critical juncture and that management and investors need to recognize that the problem is slower growth and overcapacity. ``There are just too many players in the market right now and the demand cannot support all of them profitably,'' said Neff. ``The only way for many of these companies to reestablish shareholder value is to strengthen their position through acquisitions or to sell off business units that are under-performing.''
Bold Steps
In order for companies to survive, bold steps must be taken. Neff advises the key players to act now instead of waiting for the effects of consolidation. ``It is time to do it before it is done to you,'' said Neff. The following are the recommendations Neff has made to key players in the PC industry:Dell Computer (DELL)--Buy Market Share: Purchase IBM's PC Business or Gateway
IBM (IBM)--Get out of the PC business, sell operations to Dell or Compaq and get a services deal
Hewlett-Packard (HWP)--Buy Compaq
Compaq Computer (CPQ)--Sell to Hewlett-Packard; pass on the IBM option
Gateway (GTW)--Retrench and sell to Dell or one of the Japanese PC players
Apple Computer (AAPL)--Drop PowerPC and go to Intel
The Reasoning
The challenges of overcapacity are not unique to the PC industry. Several industries, such as airlines, autos, defense, pharmaceuticals, papers and others, have gone through the same growing pains and the result has usually been the same: consolidation has been the key to survival. According to Neff, PC makers need to eliminate overcapacity and increase demand and the best way to do that is with a smaller number of stronger players in the field.
The PC industry can learn lessons from the disk drive business, which also faced the challenges of overcapacity, according to Neff. ``The disk drive business denied consolidation for years, resulting in years of under-performance, aggravation and losses. The PC industry would be wise not to make the same mistake. The companies that recognize this early will get the best deal for their shareholders, and the companies that don't could find themselves trailing the pack.''
Consolidation is indeed overdue on the PC sector, and there is little doubt that some of the advice given above will be taken by the major players at some point. We can hope, however, that their advice for Apple will go unheeded.
[Update] On CNBC, Mr. Neff explained that he felt Apple's industrial design was excellent, and that their products were good. However, he said that no one cares what kind of processor is in the machine, all they know is that Apple's machines languish at 1/3 to 1/2 the speed of everyone else's. The implication being that this effects consumer sales.
[Update] Mr. Neff is spot on when it comes to many consumers being duped into buying PCs due to the perceived value of a higher MHz rating. This has certainly not helped Apple's sales in the retail channel. However, much of this gap should be closed during 2001, and the end result will be far faster Macs with the PowerPC Inside. Also, a switch to another processor would basically require Mac developers to once again retool, a daunting task that would make many of them give up on the Mac once and for all. A switch of this nature is much more complex than just porting the OS itself and redesigning the hardware, though that in and of itelf is no walk in the park.
Lastly, if Apple did switch to Intel, you could forget about things like fanless iMacs and Cubes. Intel's line just runs too hot.