For You Believers in DELL

[rranjan]

For more on the future of PCs, I highly recommend taking a look at Stacy Smith's presentation from the INTC shareholders meeting in May.

http://intelstudios.edgesuite.net/im/2011/live.htm

I'm attaching the presentation.  Hopefully, Intel won't mind.

Start on slide 23.  Oh, and pay close attention to slide 37.

Txlaw - Intel has always forecasting decent growth of PC. I think we talked about Intel views about PC sometime ago here. In big scheme of things, it's pretty simple concept due to low penetraion in developing countries and no real replacement of PC being present at this time. I picked up  some Intel few moths ago and I was hoping to add to it in recent crash but price did not go lower.

Michael Dell is though very quick to take a jab at competitors. Around 1997-98, I remember him saying that APPL should liquidate and return the money to shareholders or something like that. I was doing my undergraduate at that time and remember reading it.

[Munger]

Myth -- agree on comments re Android.  Also share hope for Motorola -- but tough for me to personally determine.  The economics and compet adv of the core GOOG businesses are so powerful that I wish they hadn't moved into hardware...but what's done is done -- will be interesting to see how develops...GOOG guys are no doubt smart.

[Myth465]

Myth -- agree on comments re Android.  Also share hope for Motorola -- but tough for me to personally determine.  The economics and compet adv of the core GOOG businesses are so powerful that I wish they hadn't moved into hardware...but what's done is done -- will be interesting to see how develops...GOOG guys are no doubt smart.

I think the hardest part about Tech is the reinvestment. Google gives me hope, Microsoft and HP scare the hell out of me. Motorola makes sense for panients and product design, but not sure how they will handle the PR and interactions with other Andriod phone makers. Truth be to told they were the only viable game in town, and would have probably gotten to 70% market share vs Apple. Now they may have given Microsoft a way in.

Only time will tell, I think I will keep my dollars allocated towards simple industries but Tech is sure fun to watch. If I do buy it will be in moated companies such as Google and Intel. I cant wait to see what this tablet buzz is about....

[VAL9000]

Sorry to derail this Dell thread with more HP talk, but the relevant audience seems to be here

I'm not so convinced that HP is making a strategic blunder.  The PC business is their worst performing line of business, with an operating margin of 5.9%.  Their top line operating margin is 9.8%.

Now when I look at IBM..  they sold off their PC business back in 2005 while enjoying a top line operating margin of 10-11%.  Since then, they've boosted this margin up to 18% or so in 2010.  It's been a bit choppy but there's a clear uptrend there.

HP appears to be following Oracle and IBM's model: enterprise software plus enterprise hardware.

The PC business has awful economics.  Palm was a stupid purchase.  These are both sub-optimal places for HP to focus its energy on.  Software and services are a much better business to be in.  I'm not applauding the purchase of Autonomy because I don't know much about them, but I think the strategy has merit.  That said, there are easier investments for me to make at this time.  I'll be watching HPQ as the story unfolds.

(No position in HPQ or DELL)

[tombgrt]

Interesting post VAL. But Dell seems to see it totally different :

There are also other aspects to this. If one remembers back to the last time a large PC company was spun off or sold, there was a lot of share loss in servers for IBM (NYSE:IBM). We have far greater share than IBM does in X86 servers now. Globally they are 14-15 percent. We are about 26-27 percent. Their [IBM server] share has gone down, down, down since they spun off the PC business.

There are very important reasons for that: one is the integrated nature of client and server sales in many accounts. There are also important economic reasons for it. If you open up a server and look at what's inside a server, it's processor, disk drives and memory. Those are the three primary cost ingredients that go into a server. Where are most of the processors, disk drive and memory in terms of industry volume today? They are still in the client. Actually, about 95 percent of them are in the client. So if you are not in the client business, you have a far, far smaller volume so your costs for those materials just went up.

Who is successful in volume x86 servers today? You would say Dell and also HP. Both of those companies have had this client business volume to go with it. When that goes away for the other guys, it will create opportunity for us.

I can relate with both views but my expertise is to limited to pick a side here. I can believe this could be the right move for HPQ but on the other hand it could be very advantageous for DELL as well. Time will tell!

[VAL9000]

Tom, agreed.  It's not a zero sum game.  This could be a good move for Dell and HP.

Dell is right about the market share and that makes sense.  But where he sees their server market share going down down down, I see IBM's profits going up up up.  Which of these metrics is more indicative of a good strategy?

[Myth465]

Hey Val nice to see you back.

I think getting out of PCs has merits, but they way they did it was beyond stupid. Also what about cross selling with Corporations. I think any company which buys from HP is pissed right. The thought of buying hardware from some Asian vendor who may buy HP and the uncertainty has to be annoying.

[rranjan]

Sorry to derail this Dell thread with more HP talk, but the relevant audience seems to be here

I'm not so convinced that HP is making a strategic blunder.  The PC business is their worst performing line of business, with an operating margin of 5.9%.  Their top line operating margin is 9.8%.

Now when I look at IBM..  they sold off their PC business back in 2005 while enjoying a top line operating margin of 10-11%.  Since then, they've boosted this margin up to 18% or so in 2010.  It's been a bit choppy but there's a clear uptrend there.

HP appears to be following Oracle and IBM's model: enterprise software plus enterprise hardware.

The PC business has awful economics.  Palm was a stupid purchase.  These are both sub-optimal places for HP to focus its energy on.  Software and services are a much better business to be in.  I'm not applauding the purchase of Autonomy because I don't know much about them, but I think the strategy has merit.  That said, there are easier investments for me to make at this time.  I'll be watching HPQ as the story unfolds.

(No position in HPQ or DELL)

It might not be so easy for HP to follow the IBM or Oracle though.  As Myth pointed out , I also did not like the way they went about this business of getting out of the PC market. No matter how I look at it, they could have added best value by buying their stocks as much as possible during last few months.

[VAL9000]

Myth, it's good to be back.  Except for the drama on that other thread

I can't say that the argument around keeping PSG is really there for HP.  Sure they could have handled it differently, but I'm not sure the outcome would be any better.  I like decisiveness - compare Apotheker to Bartz of Yahoo.  I read this in in an opinion piece in FT today:

"Even if the new strategy is vindicated, which it may eventually be, he needlessly alienated investors by thrusting so much unpalatable information and future uncertainty on them at once. He should have taken things steadily rather than making a big bang." (http://www.ft.com/cms/s/0/f68ef02a-ce3b-11e0-99ec-00144feabdc0.html#ixzz1W3elwn74)

Since when are coddling and message management the way to run a public company?  This argument seems patronizing to investors.  As though we can't handle ourselves in the face of changing business conditions.

Oh I found this, too:
http://www.zdnet.com/blog/btl/ibm-reclaims-server-market-share-revenue-crown-in-q4-says-gartner/45334

As Michael Dell said, IBM dropped to 14% market share but he left out the part where they take 36% of the revenue.  This business model is looking better and better for HP.

Myth, with regards to your point about annoying HP's customers, well, that's the reality for everyone else today.  Nobody other than HP sells enterprise software, servers, and PC's.  Dell is the only major server vendor that also sells PC's at volume.  I credit Dell's model for what it is: a great business model.  Can HP's approach really compete with Dell?  What would it take HP in dollars and headaches to get there?  As rranjan points out, it's not going to be easy to be a bigger player in the software market, but it has to be easier than trying to make a mint out of the PC business in the face of Dell and all other Asian manufacturers.

Maybe I will buy some HPQ after all.

[PlanMaestro]

Are we at a point where Dell is beyond hatred and it is being just ignored? Twitter and Corner silence.