Apple Vs. Dell: Bad Markets and growth prospects

So Holy crap is the world ending or what?

Fannie Mae, Freddie Mac,  Lehman Brothers, AIG, Bear Stearns.  All out of business.  Goldman Sachs, Morgan Stanley and Washington Mutual teeter on the brink.  

Does Wall Street think Apple is an investment bank?   (PS they have more cash)

Here is an interesting factoid.

YTD Dell and Apple stocks have performed identically (Down 30%), This is nearly meaningless but it makes a nearly meaningless point. (The irony is not lost on me)

Dell is the largest (sometimes second largest behind HP) manufacturer of personal computers in the world.  They are a formidable company that makes a lot of hardware.  But heres the thing.  They sell commodity boxes with a median price point between 6-700 bucks and despite a ridiculous 16.4 Billion in Sales last quarter made $746 Million   That sounds like a lot but here is the take home message.  Their margin is 17% and their Net per share 3.5%  

Apple on the other hand despite being only 4th and making a fraction of the unit and dollar sales of Dell maintained a margin literally DOUBLE 34.8% and net earnings more than 4x Dells. (14.3%).  Apple  Netted 1 billion dollars on 7.4 Billion in sales in the 2nd (their 3rd) quarter.  

Much of the price of a stock is the prospects for future earnings that investors believe the firm has  So what are the prospects of these two firms?  Maybe the sense is that people will buy a Dell instead of a Mac because of the impending foreclosure on the family home? After all Walmart's sales are up this year at the expense of more expensive retailers. Steve Jobs health (why do we say health when what we mean is death?) is a continuing issue, maybe investors are not convinced that the iPhone is the game changer we think it is?  

Dell

Dell has nowhere to go.  They are the price competitor the "low cost manufacturer" that can sell for less than you and still make money.  NO MORE.  Dell is not the low cost manufacturer as evidenced by the fact they are selling manufacturing facilities world wide.  So here is why that matters The price competitor has to be the low cost competitor or.... well you get the idea.  Dell's sales are growing at a pace with or slightly behind the industry as a whole.  Dell cannot and will not become a high margin competitor and by the very nature of the fact that they are at the commodity end of the business cannot grow faster than the industry.

Apple

Apple on the other hand is the innovator, they sell computers that sell for an average price of well over a thousand dollars.  In fact as recently as the second quarter Apple computers represented 66% of ALL computers sold for more than one thousand dollars.  The computer business represents about 45% of their total business and is growing at between 35-50% per year currently.  Their iPod business is flat but very profitable and the iphone business is growing exponentially (but will remain marginal for the next couple of quarters)

Now after having said all this if you had to buy ONE of these stocks which one do you think will have higher returns over the next 5 years?  One more Question... If you were the commodity manufacturer and were looking for a new market to grow into do you think you would want to build computers that could run the Mac OS? Like say Psystar? 

Author is long Apple, this is not advise but you really should call your mother.

Psystar can't compete with "iDell" or HP "SmartMac"

Psystar Open Computing Gadfly located in generic industrial space Florida now famous for suing Apple computer on Anti-Trust Grounds, DOES NOT WANT TO WIN the lawsuit.  In fact they cannot win.  They would be out of business in a month if they did.  

As mentioned in a previous post.  Should Psystar win their lawsuit Against Apple they would have to compete with every beige box manufacturer in the world.  Dell, HP, Lenovo, and a long list of others that have learned the hard lesson that Windows PC's are priced based commodities that they cannot make a significant profit on.  Psystar would be run out of business as soon as the HP "SmartMac" or "iDell" computers hit the street.

As Exhibit number 1 today we have the following Article by Brian Caulfield noting that Dell is selling off it's computer factories (EG hiring other companies to manufacture for them like Apple) and hiring designers in an effort to better compete in todays computer marketplace

What makes this interesting is that it was not THAT long ago that we were reading about Dell's magic formula for manufacturing expertise  that allowed them to sell cheaper than everyone else could possibly.  It was apparently not a sustainable advantage.

Dell knows that in order to compete in the PC environment today you have to ad value beyond the beige box.  Be that design or brand, something that adds value beyond the box itself. Without the value add the only thing left to compete on is....   Price... and that is a game no one can win long term.  Psystar will go away and someday we will know who paid for this wild goose chase but 

So if Dell cannot manufacture PCs at a price that they can make a profit... What makes Psystar think that they can.  They don't and won't.  The remaining question is WHY?

Greenmail? or Conspiracy?

This is all made up.  I don't know anyone at any of these companies.  If any of this turns out to be real I will be as suprised as you.  Taking this writer seriously is seriously a bad idea.

 

Psystar Lawyer Bill: Who Picks up the check?

Who is paying the bill for the Psystar Lawsuit on Apple?

We know Psystar is counter suing Apple  (Information Week).  Anyone can sue anyone for anything it does not mean much,  but lets imagine for a moment that there is money involved...

Ahhh the sound of otherwise boring topics become interesting when there are billion dollar companies involved.

Psystar opened with a lot of interest and press See here (Engadget)

But not much in the way of credibility or obvious financial backing   See Here  (Gizmodo) 

So Now they are countersuing Apple  a company with more than $20 billion in the bank.  So are they crazy or what?

There are very few truly crazy people in the world  (and even fewer really crazy people with enough money to sue Apple) so there is a rational explanation to all of this we just don't know what it is yet.  We can however guess.  Woo Hoo! 

First Who is NOT Paying the bill.

Logic says... Psystar is not footing the bill.  If Psystar is paying their attorney by the hour then they are betting on a 3 month old business built on OPIP  (other peoples Intellectual Property) But Here is the biggest reason Psystar is not betting Moms life savings on the Lawsuit.  

Should Psystar gets the outcome they have stated they want Then for the privilege of winning they get put out of business by the Hoard of other PC Manufacturers  waiting to fill the void. Do you think for a moment these guys are delusional enough to think that they can manufacture/distribute a computing device as cheaply or effectively as Dell, HP or Lenovo?.  

So who is.

Hewdell Packovo,  This would be crazy too but it does make sense from a "Follow the money" perspective.  Generic PC manufacturer with huge market share and a willingness to throw a few bucks (For them) at a longshot bet that could change the face of the PC Business.  Finds a way to fund the lawsuit.  Look conspiracies are almost never true, but when all other options are ruled out what remains MUST be the truth.

Lawyers

If the lawyers are doing this on contingency than this is like green mail.  Apple not really wanting to find out if there is a case here quivers in a meeting for about 30 seconds and pays out 10 million dollars and Psystar becomes a distant memory.  This is a very possible outcome however boring and dirty it is.  The risk here for Apple is the lawsuit is a repeatable occurrence so they may try and make the case big enough to make the Lawyers rethink their budget.

Is there someone else that could be paying the bill?

Interesting possibilities.  and no idea what is really gonna happen.  Just as an aside  if a Windows PC Manufacturer is a WinTel machine what is the Apple analog....

Inpple?  ApTel?   InOSX?  There must be more.

Note to Reader:  Writer has NO affiliation with anyone associated with any of the parties of this case, has not met anyone in a garage in Washington getting details of anything.  This is all supposition based on rumor an over active imagination combined with previous reporting by previous reporters.

Psystar, Hewdell Packovo, and Apple Antitrust

OK, 

So as we have covered in the past Here and Here.  There may be more to Psystar than a couple of guys in a garage making Mac Knockoffs.  Think about this for a second.  You have the wherewithal (read cash) to start a business selling computers.  The business model you have chosen his shall we say... High RISK.  and right on cue Apple comes along and sues you.  Now comes the interesting part.  You Lawyer up and sue them back...    I will not handicap the chances of the case.   

Now lets suppose that the cost of this lawsuit will cost an amount equal to your projected net earnings of the business for  the next five years (read first and only) of the firm.  Now comes the question that leads you down the primrose path of conspiracy...

WHY WHY WHY,

   Would you invest in a business with no hope of return for 5 years?  NO?  that makes you sane.  so what set of SANE circumstances would make Rudy Pedraza (CEO of Psystar see profile on Crunchbase) plan on losing money for the foreseeable future?    

What if Hewdell Packovo the not real in fact mythical computer company that produced close to half of all PC's in the world were looking for growth in a market segment that they could not currently compete?  And further what if Rudy Pedraza scion of underworld computer manufacturing were approached to start a company with Hewdell Packovo's' money and at no risk to himself in order to test the law and Apple's resolve around these very issues?

He sounds saner now.  

We don't know the the story of Psystar yet Rudy/Psystar could be sane and fighting the good fight with everything he has on principal but the usual outcome when a lawsuit is filed by a 150 billion dollar company is that the company folds.  

Hewdell Packovo, Psystar and Apple

Psystar Lawsuit update…

Recently I outlined a possible conspiracy theory that while unlikely is fun and well… its fun.

Link

Just for fun I think I will try and track the goings on of the lawsuit as it progresses.  As a little background Psystar came into existence in the first couple of weeks of April shipping “Open Computers” with Mac OSX Pre installed.  Initially they could not even promise system updates since the OSX Servers would not have recognized the computers as Macs.  That being solved they expanded their offerings to include servers.  

Apple apparently filed their Lawsuit on July 3 and since then there have been several extensions for hearings (most likely procedural) but they are currently scheduled to meet/have a hearing/beatdown, on July 28th.

Along the way and this feeds right into the single bullet theory that are my paranoid flailings, they hired Their Lawyers Carr & Farrell LINK Who Have apparently worked/fought with Apple in the past.

Just thinking about the nature of this case don’t you think that Hewdell Packovo even without the conspiracy theories is VERY interested in following the progress/outcome?

Information week thinks so

So What happens…..  

To Apples stock price if they lose…

To Psystar if they win?

Psystar...

OK so think of this as the lunatic ramblings of a paranoid… BUT weirder things have happened.  What if Psystar , the company currently being sued buy Apple for making OSX loaded clone computers, were a front for a larger computer company testing the limits of Apples control over its computer franchise.  I know its a little crazy but follow me for a moment.  Lets say a huge computer company, lets call it Hewdell Packovo, knew that a couple of years from now 15-20 percent of the computer market were going to be running OSX.  And as a result in their desire to continue growing Hewdell Packovo wanted to make computers that would run OSX, and perhaps had even spoken this desire out loud.  What if Hewdell Packovo for reputational and balance sheet risk reasons knew that they could not challenge Apple’s User Agreements/licensing patents (you get the idea) .  What if Hewdell Packovo as a result of this knowledge were able to and with a small amount of money were able to motivate some guys to set up a company with the express purpose of taking the issue to court?  I’m Just sayin…  What if these guys had say a well funded legal defense fund?  The upside for Hewdell Packovo would be HUGE and the downside for Apple equally huge.  

The Risk, the Real risk (for Apple) here is that Apple loses.  A loss would result all PC manufacturers being able to sell PCs capable of running OSX. The likely result of which would end up being some sort of brokered licensing deal.

And if Psystar loses, Apple maintains its franchise and Hewdell Packovo is out chump change.  Again I know this is like “Three days of the Condor” type stuff but weirder stuff has happened, and as Deep Throat said low those many years ago… “Follow the money”