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Gartner: Apple should quit hardware business

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• .Mac

Andrew Donoghue ZDNet.co.uk

Published: 18 Oct 2006 16:55 BST

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Increasing component costs and pressure to cut its prices mean Apple's best bet for long-term success is to quit the hardware business and license the Mac to Dell, analyst firm Gartner claimed on Tuesday.

In a surprisingly ambitious report, called Apple Should License the Mac to Dell, Gartner says Apple should concentrate on what it does best — create software — and make use of Dell's production and distribution infrastructure.

"Apple should leverage its close relationship with Intel and team up with Intel's closest ally, Dell," the report states. "We recognise that this move would surprise and even shock many. We are aware that Steve Jobs cancelled previous Mac licences when he took over at Apple and that he guards the Apple brand zealously."

Up to around 1997, companies including Power Computing were given the rights to license Mac technology from Apple. However, when Jobs returned to the company, he attempted at first to renegotiate the licences but eventually opted to cancel them.

Apple increased its share of the PC market to around 4.6 percent in July this year, according to analyst figures.

Gartner claims that with the right partners, distribution channels and a more affordable price, computers running the Mac OS could eventually account for 20 percent of the total PC market.

According to IDC, Apple's sales, while still smaller than its major competitors, grew by double digits in the second quarter of this year. IDC attributed the growth to a successful transition to Intel chips.

According to Apple's third-quarter results — released in July this year — Mac sales were up 12 percent compared with last year, during what was considered a poor quarter for the PC market. Apple said that 75 percent of all Macs sold during the period used Intel's chips.

However, Apple will not be able to substantially increase this growth on its own because of increasing pricing pressure, Gartner warns.

Apple's margins for its Mac business, currently around 40 percent, are only sustainable because component makers such as Intel choose to prop up the business, Gartner claimed.

Given that HP has forced Intel to offer it comparable pricing to Dell, Intel is unlikely to continue to subsidise Apple, the analyst argues. "As a result of permanently changed market conditions, Intel has been forced to restructure and, in our opinion, cannot go on supporting Apple (or any other customer) indefinitely."

Whether Apple's Steve Jobs would sanction any of the suggestions made by Gartner is hard to gauge. However, comments made by the Apple chief executive in April this year suggest that he is not unduly worried by his company's limited share of the PC market.

"One of the nice things about having four or five percent market share is you don't really care if [the PC] market is down," said Jobs speaking at Apple's annual shareholder meeting in April.

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