Escaping PCs

The Windows PC market is contracting. The market data has been showing unit shipment declining for some time with the latest quarter having perhaps the steepest decline for two decades.

What remains undocumented however is how the market looks when considering economic value. A more complete picture would be to show revenues, average selling price (or revenue/unit), operating margins/unit and percent of profit capture.

The data is not beyond reach however. It involves combining the shipment estimates from e.g. Gartner with financial reports from the companies themselves. Some analysis is required to estimate margins but they are also not hard to obtain (e.g. from third parties.)

So here is a view of the market for the fourth quarter 2012:

Screen Shot 2013-04-16 at 4-16-4.05.57 PM

The only inference I made was with respect to Apple’s margins for the Mac. These are based on deriving a gross margin of 26% and adding an estimate of the SG&A and R&D “overhead” of 7.1% of sales, a figure which applies to the entire company. This yield an operating margin of 18.9%.

If this estimate is considered then the operating profits from PC operations imply that Apple generates more profit than all the top 5 PC vendors combined.

Assuming further that “other” vendors have the same profitability ratio as the top 5 combined yields a figure of 45% “profit capture of PC market” for Apple. This is not as good as its performance in the phone market, where Apple has about 72%, but it’s not bad.

Screen Shot 2013-04-16 at 4-16-4.16.46 PM

The real problem for the PC vendors is not that they have such low margins–they’ve had low margins for decades. It’s that the volumes which “made up for” low margins are disappearing. Apple is not immune to a gradual erosion of Mac volumes, but they have positioned themselves for growth with devices and content commerce and services. They have essentially “escaped” PCs and indeed caused the need to escape in the first place.

The problem is what could the others do? It seems all they can do is depend on Microsoft getting their strategy right.

Sounds risky.

  • they could try actually implementing the Microsoft strategy by ordering the touchscreens they need to sell the touch PCs that people seem to want more than they want the same old notebooks as last year… Lenovo Helix seems to be receding into infinity now.

    • Walt French

      I suppose you’re more familiar with Gartner’s (and others’) categorizations than I am. But if I’m correct, Gartner considers Windows hybrid & tablet devices as PCs, while Horace is comparing the entire Microsoft platform versus just Macs — not the rapidly ramping iOS products.

      So yes, you could hardly sell fewer Win8 devices by having more choices, but it wouldn’t change the basic story that the “PC” market is delivering less value to customers who no longer need new gear for those jobs, and are diverting spending to new applications with “Post PC” products — a larger number of Microsoft mobile device sales would only make it harder to see that change.

      • Both Gartner and IDC exclude tablets from their PC Shipment data. They have made distinct category for mobile devices. The reality of the situation is that it doesn’t yet matter, not much to report.

      • Walt French

        From the recent Gartner presser: “Touchscreen-based Ultramobiles offer PC manufacturers an opportunity to recover market share from media tablets, but Windows 8 PCs with touchscreens accounted for only a small percentage of consumer PC shipments in the first quarter of 2013.”

        So yes, “media tablets” are not PCs, but Slates and hybrids based on “full PC OSs” (of which Windows appears to be the sole example) are PCs.

        Agree with you totally that there aren’t enough non-PC Windows machines to worry about how they should be classified.

      • So, Surface RT is a tablet, and Surface Pro is a PC?

      • Walt French

        I’m guessing based on having seen the point raised elsewhere. I’m not claiming either that the methodology is sensible for any purposes other than selling studies to PC manufacturers, or that it is clearly-delineated.

        There’s some sense to it, as people who buy a $200 tablet for the kiddies to stay pacified in the back seat on car trips aren’t going to buy a $1000 Slate for that purpose; nor are business users likely to rewrite their stuff on Android so they can buy $200 devices for their field techs. But mostly, it seems it was just Gartner’s way of avoiding the confrontation that the latest data made inevitable.

      • to which the answer is both yes, and doesn’t that prove how bad we are at distinguishing these categories.

      • Another way of looking at it might be that Gartner and IDC are only counting devices of the WinTel dynasty.

      • Gartner predicts the big growth opportunity is something it calls ultramobiles; which seems to be MacBook Air, hybrid tablet PCs in the Ultrabook class with touchscreens. The industry is having more of a crisis of categorisation than sales, in many ways.

      • Walt French

        It certainly makes the PC drop-off look a lot less severe if you toss in another what… 40 million? tablets per quarter. (I think the ultrabooks/airs are already in the laptop bucket and current hybrids are insignificant.)

        But as somebody who’s been a laptop user for a decade, and watches my wife mostly thriving with an iPad, I note that they serve very different purposes. Businesses seem very unlikely to deploy tablets to replace a laptop or desktop thats doing its job well; I kinda doubt the hybrids will hit some sweet spot well enough to justify their extra $300 I’ve seen ascribed to them. Although that’d come down if they gained traction, a tablet needs full synchronization to an intranet anyway; the benefit of having one somewhat awkward device seems offset by being less suitable for jobs I envision.

        If Microsoft wants its Slate to get traction, they’ll need to create tools that are optimal first for convenient, low-cost, lightweight tablet functions, and forget about carrying all the legacy baggage in the effort to leverage their supremacy on the desktop.

        So I think tablets will keep their separate identification despite hybrids and despite Microsoft’s best efforts to claim “no compromises” in a single OS. Yeah, maybe Gartner will shut up about “media tablets” except for the very low-cost or explicit home-kiosk content machines such as the Kindle Fire.

    • handleym

      You can assert that people WANT touchscreens all you like, just like MS has done for the past year. But that doesn’t change reality.
      A successful company gives people what they want; it doesn’t insist that the world is wrong when it refuses to want what the company is offering.

      • Space Gorilla

        The reality in enterprise use seems to be that companies want iPads.

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  • Ultrabooks never really took off. Touch-based PCs seem to be adding $300 to the overall price, not the $100 originally speculated. Only a 7-inch tablet can price compete with that cheap POS computer at Best Buy.

    These seeds were sown a long time ago. The buying public has been trained to expect a low cost solution. Changing that behavior will be tough. These people may be attracted to the tablet, or another POS computer. They’re not willing to spend $1000. If they are, they’re also looking at Macs. Apple has been a dominate player in the higher end space. Microsoft is getting squeezed, big time.

    • Walt French

      Touchscreens at $300 — several times the cost if they were a high-volume feature — is a warning that there isn’t really active competition for them. Almost certainly it’s ALSO a sign that there’s no demand for them on Windows.

      I sure wish we had better corporate-vs-individual data but methinks most corporate purchases are based on similar job functions as existed a year or two ago. There just AREN’T mature corporate verticals where good touchscreen apps have been built yet, and nobody can make the case that Office — essentially the only significant touch-ready app — is better on a tablet than a conventional notebook.

      This chicken-and-egg might cure with time, or inhouse developers might just find the iPad the cheaper, easier and more robust solution for job functions that require high mobility. So far, Apple has met the Surface/hybrid challenge only by offering a huge-memory version of the iPad; it’ll be interesting to see what other moves they make to compete when the Windows post-PCs reach parity with today’s iPad capabilities.

  • LTMP

    I doubt that any of these companies could put out a good high end machine and get any margin at all.

    By avoiding commoditization, Apple has been able to grab almost all of the high end market, thus giving them the volume to maintain a decent (though not great) margin.

    Apple’s share of the market’s profits will likely continue to rise, even if sales decline.

    • what are you even talking about? “not great” margins? they have FIVE TIMES more margin than the top 5 vendors

      • Perhaps he’s comparing it to the over 50% margin of the iPhone 🙂

      • Dude

        5 times shit is just more shit, 5 times crap margins is, we’ll better than crap. But it’s not great.

      • LTMP

        Great is a relative term. Apple’s Mac business doesn’t give great returns relative to their total business.

      • Nonsense. If the Macintosh division were to be broken out, it would be in the Fortune 150. Of course, that puts the rest of Apple in perspective.

      • LTMP

        My point exactly.

      • mieswall

        I understand that basic microeconomic theory says that if these margins were low, opportunity cost of doing computers instead of only iPhones would made Apple to build only the latter. I’m pretty sure Apple is very aware of this, and manages a balanced mix of what to build maximizing return. These product shortages should be seen in that light, imho.

        I was trying yesterday at Dell’s site to configure a workstation with an equivalent capacity (cpu, screen size/quality, storage capacity, fast storage, wireless interfaces, compact footprint, etc), to an iMac 27″, needing to evaluate implementation for several people. Took me forever (it’s a wonder these guys can sale a thing with that interface – dozens of models, hundreds of options, many not compatible between them-). Finally the result was a (ugly) product much more expensive than the iMac.

        Apple offers 3 computers. That’s all. Easy, beautiful, quality built, powerful enough, and with guaranteed longer useful life. And now, even cheaper (economies of scale, buddy…).

      • LTMP

        When you poor most of your resources into building the least expensive machines that you can, and retain only a pittance of profit, it is very difficult to move upscale.

        Apple builds almost all of the high end consumer computers. They have a huge scale advantage in that market. I believe it is an insurmountable one.

        Bundle that with brand perception, and Apple is most likely to continue to draw the oxygen out of the traditional PC market.

      • BuyOnSale

        “I understand that basic microeconomic theory says that if these margins were low, opportunity cost of doing computers instead of only iPhones would made Apple to build only the latter. ”

        When you have $140,000,000,000 sitting around earning less than 1%, the opportunity cost is relative to THAT. Not the iPhone. Not the iPad. Not the iTV or whatever else iDevice they can conjure. They have more zero-earning cash than they could ever use. ANY project with a reasonable return on invested capital makes sense at this point.

      • Chaka10

        Great point

      • Chaka10

        My only quibble with this is that mgt bandwidth is also a resource and more scarce at Apple than capital. In any case, that is a quibble — Mac is core (sorry for pun) to the Apple ecosystem, and ecosystem is what it’s all about. Android has no desktop. Wintel has desktop but no mobile. Apple has both, working from a common history and design.

      • JohnDoey

        The iOS business depends on the Mac like Web browsers depend on Web servers. iOS, its apps, and almost all of the books, music, movies, and websites it runs are all created on Macs. If the Mac didn’t exist yet, Apple would be planning it, designing a workstation based on the iPad. Even if the Mac were run at break-even, it would bebeneficial to Apple. Almost every Mac out there is a developer/producer/publisher system for iOS. Silicon Valley and Hollywood are over 75% Mac users. You can’t buy that kind of large scale influence, and Apple gets it for less than free because they get paid to provide it.

        The Mac is a great business. And it may get even better if Apple turns it into a tablet that runs Final Cut and Logic and Xcode and Quartz Composer and Aperture and AutoCAD.

      • rational2

        Agree Dell’s site has grown to be a mess, but if you are patient and do some research, you can usually find good values. For instance, I was looking for a 32 GB ram quad core. All the other options I found, including at the Apple store, were priced 3000+ (without monitor). Dell, however, had a XPS with that specs for about $1800 (and they threw in a monitor). I was in the market for a PC to do some number crunching and this worked just right. But I had to spend a bit of time looking around for options. It seems most vendors treat machines with 16+ GB as small business/enterprise stuff and add unnecessary crap and price them high. Dell gave me options others didn’t.

  • dvhwgumby

    It is interesting how Apple is sucking the profit out of this sector too, but the ecosystem question is more interesting. Just as Android has platform volume but no real app volume: isn’t windows in the same place? How much do Mac owners spend on apps compared to Windows owners?

    They are still shipping a TON of Windows licenses for ATMs, power plants, airport check-in terminals and the like. Just doing so at a tiny margin. _That_ is the interesting story. We try to avoid using Windows but there are a few apps we can’t yet replace.

    I learned long ago never to be an OEM supplier. The guys who make the camera chips, licensed software modules etc can get a high premium at the very beginning (“this phone has the most awesome camera”) but once production ramps up the end vendor needs to cut costs and/or improve margins, and the only way to do that is on the back of the suppliers. Microsoft used to be the tail that wagged the dog, but now they’re in the same boat as the disk drive, or even capacitor suppliers. I don’t think anybody’s really talking about this.

    • Walt French

      Your characterization that “Apple is sucking the profit out of this sector” is essentially the opposite of Horace’s characterization that profits are a measure of the value that the company creates for users who buy those machines as a matter of choice.

      • dvhwgumby

        That’s a good point — my message mentioned both in the first two paragraphs without being clear.

        Apple is taking most of the profit out of the share of revenue that goes to the mfrs + OS vendors. I wonder how much profit in the sector goes to the people who build on top of the PC. My guess (don’t have the data though) is that the Wintel ecosystem overall still generates more profit (that was the point of my example of ATMs and POS systems).

        On the post PC platform different — it feels like not only is Apple taking most of the hardware mfr + OS vendor profit, but its (smaller in installed base terms) segment is also generating the lion’s share of total profit, with the ecosystem’s realized profit included.

        My overall conclusions were that:

        1 – Microsoft is now in the low-margin segment of their business, with Office the next to come under pressure

        2 – Microsoft’s _customers_ are probably also in low growth / decreasing margins areas. The action seems to be on the iOS and web side, where Microsoft offers no advantage.

      • Chaka10

        I’ve been discussing in a thread elsewhere whether MSFT and INTC will come under unit price/margin pressure (not just OEMs), as the Wintel PC market continues to decline. On rereading your post, perhaps we’re making (suggesting) the same point.

      • JohnDoey

        The way that Apple is sucking out the profit is they are selling almost all high-end (high-profit) PC’s since they shipped the Intel Mac. The other PC makers have been relegated to $400 PC’s that are being replaced wholesale by iPads.

        There are only a limited number of users who will pay $1000+ for a PC and Apple has almost all of them. The $400 PC is not really a profitable product. iPad sells for more (in ASP) and iPad is made of cheaper parts.

        The way that Apple is creating the value is they created the first successful PC (Apple II running VisiCalc) which was cloned as IBM PC, and first successful graphical PC (Mac running Word, Excel, Photoshop, Ilustrator, PageMaker, Notator/Logic, QuickTime) which was cloned as Windows 3.1, and the Web was created on a NeXT workstation hich was cloned as Windows 95, and they created the first successful PDA/ARM mobile in Newton and first modern smartphone in iPhone and the first successful tablet PC in iPad. So the whole PC era has been users running Apple systems or clones of Apple systems. Creating the devices keeps them ahead and when they are well managed, that enables them to suck out most of the profit because the people who need to be ahead (Hollywood and Silicon Valley types) are willing to pay more for that. So they create the value and then keep the most-profitable part of that value.

  • Chaka10

    Horace, thanks for the insight. Do you have the profit share info on a trend basis? Have you seen (or done) a breakdown of Apple’s Mac sales by region? I sense (but don’t have data to show) that Apple’s Mac business is disproportionately US, and maybe Europe. If that is so, China and other EMs may be on the cusp of becoming a big opportunity — on the back of iPhone/iPad growth (increased brand awareness, increased distribution, etc.). I think the PC market is taking an initial adoption hit from the tablet/smartphone adoption, but that will stabilize and I believe Apple is positioned to grow profit in that sector, on share and absolute basis.

    • Chaka10

      I believe it is under-appreciated how well the Mac works with iOS devices (as pointed out elsewhere, iOS is OSX-lite) and I believe that the huge and growing installed base of iOS devices will feed back into the Mac — at some point.

      • Chaka10

        Perhaps a way to appreciate the iMac, in a different way from the “traditional PC” perspective, is as a super iPad (on a pedestal, and with a touch pad rather than touch screen) and the MacBooks as a super iPad, with a keyboard (how much different is it, really, from an iPad with a Logitech bluetooth keyboard). The key for the user is they all work together.

      • obarthelemy

        This cuts both ways though: unless you have a full-Apple setup, getting your devices to interoperate and share files/content/functionality is a lot more cumbersome if you have one single Apple device.

      • Chaka10

        Apple-nonApple is not any more cumbersome than Android-PC, or Android-Android. Point is, Apple devices interoperated seamlessly and that’s a key distinguishing advantage for users.

      • obarthelemy

        No. Apple-nonApple is quite more cumbersome (what do you do with a Miracast/dlna TV ? what do you do without iTunes ? don’t forget to get all new cables and chargers…), while Android uses the same standards as everyone (PC, TVs…) so is a lot less cumbersome than Apple.

      • Stop it, right now, both of you.

      • Chaka10

        ?? I value reading posts on “both sides”, so long as thoughtful. Is there something you find offensive?

      • Walt French

        For me, not so much offensive as off-topic, repeating a tired old battle that never changes and so never gives us insight into how it will matter more or less in the future.

        Which I guess is at least annoying to wade through on a site dedicated to “collaborative and peer reviewed analysis” of the future of mobile computing.

      • Chaka10

        I suppose the candor is appreciated, though not sure how a discussion of the Mac (and how it operates with other devices) is off topic? Frankly, I would hope civility is important on this site too.

      • Walt French

        Yes, civility is important and no, I was not saying this was the sort of dreck one can easily find at TheVerge or similar.

        Just that discussions ought to open up new avenues of thought. Which, for me, this thread didn’t. Likely, that was the inspiration for the original note to you.

      • Chaka10

        My original post sought to question the proposition that, as Horace put it, “Apple is not immune to a gradual erosion of Mac volumes” and to suggest instead that there may be reasons (offered above) to believe the Mac business can be a growth opportunity for Apple. How is that either off-topic (not just generally to this site, but to this specific blog today) or not “new” (where else in Horace’s piece or the commentary is that covered?)?

        The foregoing in a sense is really besides the point. I find it incredibly presumptuous of you not only to speak for another blogger, but to take it on yourself to criticize NOT the logic or analysis in, but the VALUE of, another commentator’s post. Frankly that is NOT civil and invites exactly the sort of bickering that I’m chagrined now to find myself engaged in with you. I am sorely tested not to respond to you in kind, but that (to me) would be exactly the waste of space on this blog that you (and I as well) find “annoying”.

        I do not presume to ask you to drop this, but please know that I will not be responding further to you on this line.

      • Sacto_Joe

        Getting back on the subject, it seems to me that it needs to be remembered that a Mac IS a PC anymore. In fact, that’s its special appeal; it covers all the bases.

      • Chaka10

        Thank you. Yes. My interest in data on Mac sales by region goes to my sense that Macs are just beginning to break into China and other EMs, markets where, on the back of the iPhone and iPad, Apple brand has grown tremendously, the Apple distribution channels have expanded and continue to expand, and where many users have now gotten their first exposure to an Apple product, and thus iTunes and the whole ecosystem. I would be very interested to look for signs of that feeding back into the Mac.

      • BuyOnSale

        I think many will be lead astray by ideas that people in emerging markets are not as wealthy, and therefore will not be able to afford Macs. On average, per capita, true. But China and India and Brazil all have a significant number of wealthy citizens who will appreciate (and afford) what Apple has to offer…just like every other country. Who cares if only 1% of Chinese and Indians buy Macs? That would be about 22,000,000 units. And do you think a single one of those WOULDN’T chose Apple for their smartphone or tablet?

      • BuyOnSale

        Last I heard, you can get iTunes on PC’s. Do any of the hundreds of millions of iOS users NOT have/use iTunes?

      • obarthelemy

        Yes you can. It’s even suckier than on MacOS, and without it you can’t do much “integrating” of your device. Android OTOH doesn’t require any specific software, let alone a messy relic.

      • Kizedek

        Sure you can “integrate” your Android device with all kinds of computers and software — because your Android phone is basically functioning as a USB stick.

        I can play media files and content on my iOS devices from any number of sources, too. Dropbox, my web server, email attachment, and yes, just an exposed file system that any number of iOS apps can provide.

        This iTunes relic is going far beyond “putting your media on your phone and allowing you to play it, however”. I am sure you will put me straight and tell me how well this works on Android, but the point of iTunes is to “manage” your media. Typically, people have terabytes of music, terabytes of video, gigabytes of photos and books.

        Guess what? Mobile devices are finite in storage space. Maybe someone has 20 GB to play with and doesn’t want to spend time every day rotating all his media libraries through his mobile device. Smart folders and dynamic play lists are there in iTunes to rotate your media in the background. It can be media you haven’t played for a while. It can be certain genres. It can be your highest rated. It can be the highest rated that you haven’t played for a while. It can be unplayed podcasts, unread books, or the one you were in the middle of on another device.

        The point is, you don’t spend time trawling through thousands of files to find what you want on your device that day; and you don’t have to drag these files anywhere. My iPhone and iPad are doing all this wirelessly in the background.

      • obarthelemy

        That’s neither what I said, nor what I think, nor what this is about, so I’m not sure what you’re getting all hysterical about.

      • BuyOnSale

        It is a certainty. For those who had no exposure to Apple/Macs previously, some non-trivial portion of those who own an iPhone or iPad will try a Mac (over a Wintel PC) when they need to replace. And once you’ve tried a Mac, you never go back (seriously, do you no anyone who has switched from Mac to Wintel?).

    • I don’t have historic or regional data. I just started looking at the market this way and it may not be something that I can do on an ongoing basis. I doubt that the margin figures have varied all that much.

  • Bill Esbenshade

    The current trend aways from Windows PC’s should be really good for iPad sales, because anyone who replaces a Windows PC, or delays/forgoes the purchase of a Windows PC/laptop, is going to want a powerful, full-featured tablet like the iPad rather than a more limited Android tablet, Kindle Fire, or Chromebook.  

    Applying disruption theory, from a functionality/reliability and convenience/customization standpoint, non-iPad replacements aren’t minimally “good enough” for purchasers replacing a Windows PC or delaying/forgoing the purchase of a Windows PC. 

    • tomban

      “full-featured tablet like the iPad” ?

      Full featured tablet – only windows 8.
      iOS – phone OS

      • BuyOnSale


        Call it what you want. But the fact is, there aren’t a whole lot of people jumping onto the Windows tablet bandwagon. Regardless of how you want to label it.

      • KirkBurgess

        This may come as a surprise to you – but on a tablet, 95% of the worlds consumers would rather have a “phone OS” than use windows, as sales figures show.

      • JohnDoey

        iOS is a tablet PC OS, not a phone OS. It has an OS X core, native C/C++ PC apps, and has more tablet PC features than Windows 8. One reason iPhone apps are so much better than Android apps is that iPhone is running native C/C++ PC apps with mini views rather than running mini Java applets. iPhone is a mini tablet PC, not a phone. iPhone grew out of the iPad project — a tablet PC project.

        You’re using “full-featured” as a propaganda word, a troll word, because like I said, Windows 8 has fewer tablet PC features than iOS, and Windows 8 also has fewer tablet PC apps, and the Windows tablet apps cover fewer app categories. iOS also has better security and stability, no viruses, and requires almost no training or maintenance. Those are key features that all versions of Windows lack, including 8.

      • tomban

        “Those are key features that all versions of Windows lack, including 8.”
        You never had windows 8 tablet? Yes?

        ” a troll word”
        Your word.

        “Windows 8 has fewer tablet PC features than iOS”

    • BuyOnSale

      Great, and original, point.

  • Luis Alejandro Masanti


    “Assuming further that “other” vendors have the same profitability ratio as the top 5 combined yields a figure of 45% “profit capture of PC market” for Apple. This is not as good as its performance in the phone market, where Apple has about 72%, but it’s not bad.”

    It feels funny: We are discussing if Apple is sucking “half” of “three quarters” of the earnings of “entire product categories”!

    Maybe, the “market share” pundits can learn where to put the eye. (“Eyes on where the puck will be.”)

    Also, Apple’s iOSing of the OS X ecosystem (not the UI, the App Store et al) shows that they learned its own lesson. Just put iBooks and Newsshelf in OS X (maybe with an emulator) and the “delivering universe” will be completed.

    • graphex

      “It feels funny: We are discussing if Apple is sucking “half” of “three quarters” of the earnings of “entire product categories”!”

      The market WILLINGLY chooses every day to trade their money for Apple’s products vs. competitor products. Apple didn’t do anything the legacy manufacturers couldn’t have done themselves. They were told a long time ago to Think Different. Rim, Nokia, Motorola, Sony, Nintendo, Dell, HP, Microsoft, etc. didn’t and they are reaping what they have sown.

      • Luis Alejandro Masanti

        It is like the “The Purloined Letter” by Edgar Allan Poe!
        Apple said almost everything it would do before doing it.

        This demostrates that “Thinking differently” is not an easy game.

      • BuyOnSale

        But everyone keeps telling us that Apple is no different than Nokia or Rim or Sony, right? Isn’t that why it’s selling for about 7X trailing earnings net of cash on hand?

    • JohnDoey

      Mac OS runs iBooks Author, and iOS runs iBooks. That is already exactly as it should be. The Mac is a producer/developer/publisher accessory for iOS devices. Apple expects everybody to have an iOS device, and some will also want a Mac. You’re not expected to have a Mac and no iPad, same as you are not expected to have a Web server and no Web browser.

      • Luis Alejandro Masanti

        Good point!
        But I do want to have only one device at a time: If I’m in my desktop, why should I have to use my iPad?

        But always Apple and all other companies had “sectored” their own market.

        (I do remember that my HP-25A needed “just” one more memory OR one more programming step to be able to invert a 3×3 matrix. Obviously not a technical problem. For 3×3 matrix inversions you should buy the HP-67!)

  • And how much profit did Microsoft make off Windows in that quarter? Shouldn’t that be added to get an actual pc operating profit?

    • Meaux

      This is a good point. For the PC manufacturers, Windows will be taken out of OP in COGS. For Apple, it will just come out of amortizing capitalized software expenses. Due to Apple’s vertical integration, this is an apples to oranges comparison.

      • I can’t agree. In the case of the Windows licensees their cost of goods does include the fee for Microsoft but operating income includes R&D and SG&A, both of which are significantly higher for Apple (7.1% of sales). I don’t think Apple capitalizes software expenses.

      • Meaux

        But the cost of Windows also includes Microsoft’s R&D and SG&A plus a hefty profit margin. The operating income of Windows Division ($2.7B) is more than the operating profit of all of the PC manufacturers combined with Apple’s Mac division. If you add back just Microsoft’s profit to the PC manufacturers, it changes the picture significantly. You could weight it by units shipped to get an accurate picture.

      • Joe_Winfield_IL

        Microsoft is not a PC Vendor (Surface notwithstanding). I don’t see how the Windows OS should be treated any differently than hardware components for the purposes of measuring profitability of PC vendors. It is a “part” which the vendors buy in bulk, then use to assemble the finished product. Apple does not have to pay an outside vendor for this component, but it does not mean OS development isn’t a cost for Apple.

        Go ahead and acknowledge that Microsoft is the king of the hill in PC profits, but you cannot distribute their earnings among their customers for the sake of analysis. Microsoft has no interest in sharing their wealth in the real world, so no consideration should be given to doing it virtually.

        The biggest reason Apple’s profitability is so high is that their ASP blows away the rest of the field. You can suggest plenty of root causes for the vastly better ASP, but the net effect is that Apple is able to charge a higher markup percentage on PCs built with more expensive parts.

      • Walt French

        Joe, an Apple customer has to “buy” OSX similarly to how an HP customer has to buy Windows. There’s a CPU in both boxes, so you don’t need to adjust particularly for that.

        My intent on pushing the same line is not to diminish the Apple value-add but rather to understand it better. No matter how much Apple wants to have a unitary P&L, I also care that there are some internal signals about where Apple should devote its energies, some feedback to allow understanding whether more/fewer engineers should be put on OSX.

        Yes, Apple “just knows” about their future in post-PC but there are many years until the Mac is irrelevant and as the exchange between obarthelemy and Chaka10 highlight, it has a lot to do with the iOS value proposition.

      • Joe_Winfield_IL

        Walt, the allocation of internal resources at Apple is an interesting point to consider. I imagine Apple has every intention of continuing OSX/Mac development for the foreseeable future, but the question is obviously to what degree.

        It will also be interesting to see how the Wintel OEM industry learns to exist in a world where their main product shifts from the high volume cars to lower volume trucks of the Steve Jobs metaphor. For example, as fewer PCs are sold, will ASP actually increase? I would think that $600 PCs are much more affected by $400 tablets than $1000+ PCs.

      • JohnDoey

        OS X represents about 3/4 of iOS as well as 3/4 of Mac OS. OS X is Apple’s Crown Jewels and will obviously continue to be developed. The only thing that is in danger of being retired shortly is the mouse user interface. Thinking that the Mac is not needed is like saying “now that everybody has Web browsers, do we still need Web servers?” iOS and all its apps are built on Macs. iPads and iPhones are designed on Macs. The audio video, books, and websites that are enjoyed on iOS devices are made on Macs. The Mac and iPad have a symbiotic relationship, not competitive.

      • Walt French

        Somebody who is much more expert on the implications of the phrase “value stack” should add their thoughts here.

        But I’ll note that in Econ101 land, a commodity is a product that has no excess profit. Somebody else can make a virtually identical object and has almost identical costs, so if there WERE 2¢ of profits, the new competitor could sell for 1¢ less and siphon off all the first company’s business. That’s more or less the situation Horace charts above.

        Also in Econ101, a monopolist maximizes profits by setting a higher price than the cost of producing one more unit (which is close to zero for software). Microsoft should (and apparently, does) price against the alternative of no sale to anybody; higher because of no good alternative: leaving Microsoft is essentially impossible for most large companies’ desktop jobs*, and so in that market, Microsoft should be the only profitable entity (a point I’ve argued above, fruitlessly, it’d seem).

        I’d argue that while the iPad has a double-pronged advantage against a Wintel machine (by undercutting the Windows license cost and not paying for the much more expensive X86 chips), the Mac’s advantage is primarily to lower maintenance costs for self-supporting users. (In Teh Enterprise, total ownership costs can be reduced by cookie-cutter policies and cheap hardware.)

        Part of the Mac growth is iPhone/iPad halo/synchronization but maybe even more of it is the shift towards smaller organizations (epitomized by Asymco?) in the world’s economies, since smaller shops can’t afford dedicated IT or customized Systems Integration. Macs are valuable to these structures because they benefit from simplified support; Apple uses high quality design at least in part as a way to signal reliability and support.

      • Chaka10

        Would you consider iOS penetration into the large scale enterprise a potential leverage for greater adoption of the Mac in the enterprise? What is the barrier to the Mac potentially to do what you do now on Windows machines (and cannot see that changing) — is it software suites specific to Windows?

      • Walt French

        Fr’instance, we subscribe to one service that provides analyses, data and tools for which we pay about $250K/year. Each night, updates to customer, vendor analytics and 3rd-party data is loaded into a SQL database, and analyses are run in batch. I may use the batch results by copying them (via Excel links) or tweak them before action. There are probably a few dozen explicit links to Windows and Office and the downstream workflow is ALSO only provided in Windows.

        The barrier is that there are only a few hundred firms using these types of services — they are enormously complex in their own right (limiting the number of users) and the workflow necessarily interacts with many similar products. Think Fitzcarraldo as a metaphor for the likely outcome of moving a huge object, just to get back where you started but with damaged goods, huge expense and dispiriting failure.

      • NoName

        Yes. Two years ago, my boss would not even allow iOS devices on the network. Now, not only is he using a Mac at work, he has bought 4 Macs for his home/wife/kids, and everyone’s on the iPhone. His kids hated the cheap androids they got, and are so much happier when he got them the iPhone.

        I pointed out – Quality = have to pay for it, and he agreed.

      • JohnDoey

        Why don’t you just add Intel’s profit and NVIDIA’s profit as well? They are also PC part makers.

      • Kizedek

        Yeah, I agree with you. Horace has left out MS’ profits for good reason.

        For those who want to include Windows profits, it would be like analyzing the car industry and specifically comparing electric cars (if say Tesla basically made most of the popular and profitable electric cars) to all the conventional car makers who are competing feature to feature — BUT then saying, “well, we really need to include the oil industry in our analysis because their profits really show the ‘health of the automotive industry’ despite the failures and bailouts of all kinds of car manufacturers left, right and center.'”

      • Meaux

        The difference is, as pointed out in other places, the rest of the parts are largely bought from the same vendors. Apple, HP, Dell, Lenovo, etc. all buy motherboards, hard drives, displays, etc. The 800 lb difference is that one pays cost for their OS and the other pays twice as much as cost.

      • SemiMike

        Problem seems to be the focus on margin rather than cash flow, and a graph on Mac vs Windows rather than Mac vs a bunch of PC makers shows that making hardware is low margin business. Apple’s MAC makers are also low margin. Apple, does design their hardware, unlike Microsoft which mostly sells just the OS and their famous Office apps. So these graphs are fine, just not sufficient to tell the whole story. Add a few more graphs perhaps to show margins for entire supply chain, components, software, displays, assembly subs and see how the cash flows and how much drops to various bottom lines.

      • BuyOnSale

        Horace, you’re almost always genius in your analyses. But in this case, I think you’re wrong. Unless you can specify what percentage of the profit on a Mac is derived from its hardware and what percentage is from the software, then it is simply not a valid comparison…unless you do as the previous poster suggested and include Microsoft’s Windows profit in the picture.

        Nevertheless, for AAPL investors, it’s a somewhat academic point, as the fact is Apple makes it’s profits off the integrated whole of hardware/software/services. And it’s doing quite well in that regard.

      • JohnDoey

        Operating system software is part of the hardware. It is not magic, it is not a separate thing. It is you who is making a giant technical mistake, not Horace making a business analysis mistake.

        Firmware software is also part of the hardware. CPU software is also part of the hardware. GPU software is also part of the hardware. All of the software bits can be seen with your eye if you put the hardware under a microscope. You can literally see the transistors set to 1 or zero.

        All of the above is an expense for both Apple and Dell. Paying for all of the above reduces margins for both Apple and Dell.

      • So by your suggestion if a PC vendor licenses Linux (or Android, as many do in their mobile divisions) and since they would pay nothing for software then we would have division by zero in our calculations.

      • narg

        Linux is not free. All PC vendors pay Microsoft (and a couple other companies) for the rights on some of the software patents used.

      • JohnDoey

        No. Operating system software is just a hardware part, like a GPU. It is an expense for Dell, it is an expense for Apple. You don’t add Microsoft’s profit or NVIDIA’s profit to Dell’s profit. Microsoft and NVIDIA profit off of Dell. If Dell pays more for OS software than Apple, then Dell will be less profitable.

        Software is not magic. When you buy a modern PC, there is software built into the CPU, GPU, SSD, and other chips. Software is part of the hardware.

    • If you wish to add Intel and disk drive makers as well? What about the assemblers and designers and application software companies? If we do that then we need to work out how to do the same for Apple. In either case: Q4 operating income from Windows and Windows Live was $3.3 billion.

      • Since everyone is pretty much using oems for these parts in doesn’t really matter for the purposes of this discussion. But if you want to talk about the overall economic value of the PC market, leaveing out the major profit center for PCs doesn’t really paint an accurate picture of the PC market’s economic value. Now if you are just trying to make a point that Apple is a more profitable hardware company, I guess that’s useful somehow. Except Apple isn’t just a hardware company, and it’s success has to so with being an integrated software and hardware company, and therefore the OS profits seem important to the overall picture.

      • Boltar

        What on earth makes you think the point of the discussion is “the overall economic value of the PC market”? Horace’s topic seems to be much more the health rather than the value. The fact that your liver is incredibly healthy (or profitable) doesn’t help much if your heart is failing. The division of labor (and profits) inherent to the PC production system means that the health of every product line is governed by the weakest link in its production. If Dell is not sufficiently profitable to remain long-term viable, the fact that Microsoft is raking in profits isn’t compensatory – though it might be causative.

      • But the saying the health does not include MS’s revenue and profits is short-sighted IMO. If Dell goes away, there are dozens of OEMs that can step in and fill the gap so long as MS remains healthy. The advantage is the parallel links MS has in their chain. One can break and be weak (IBM anyone? Wang? Columbia? Gateway? DEC? TI?) and another link will take the slack or a new link formed.

      • His second paragraph. I get generally that he trying to make a point about vendors, but his set up is about the windows pc market and it’s economic value. That, IMHO, needs to include Microsoft.

        His later point about diminished volume with lower profits being bad for the vendors is reasonable. However, not every company needs to have astronomical profit margins of Apple. I think I read some where the average profit margin for companies in the US is less than 8%. So plenty of people are in business and are fine with getting 4%.

      • With respect to operating margins, here are a few of them. Note that these are platform makers not product makers. The distinction between having “astronomical” margins and having “fine” ones is owning an ecosystem.

      • Chaka10

        To niggle a little bit, I don’t know that Google’s operating margins are from its ownership of an ecosystem (at least not Android).

      • BuyOnSale

        I suspect you really mean that you DO know that Google’s margins are most definitely NOT from Android. Android has done almost nothing for the profitability of Google. It’s all desktop search for them.

      • Chaka10


      • mieswall

        but Horace, this is the whole company Op margin. Macs-only op would not have the rise and fall of Q1/12, that was due to iphone4s form-factor. And probably MSFT op. margin seasonal peaks are due to xbox, not the matter of this analysis as well. (the dip, as we know, is because of MSFT splendid use of cash in sound acquisitions, like those we are demanding to Apple for the cash hoard).

      • Wow – This is a striking set of data. Looking at margins this way seems a powerful lens to determine how much of the margin can be taken as short term profit or used to grow the ecosystem. Keeping clear what part of Apple is platform versus which part is product is a bit of a challenge, but applying this filter helps greatly to keep the larger context in mind. Thanks!

      • BuyOnSale

        “I think I read some where the average profit margin for companies in the US is less than 8%. So plenty of people are in business and are fine with getting 4%.”

        Profit margin means far, far less than return on invested capital. One can compensate for low margins by high inventory turnover. Just look at Wal-mart.

      • BuyOnSale

        While your point might be valid (that whatever the reason, the fact that all of Apple’s PC competitors are on life support helps out Apple), that is not the point Horace was making in his article. He was specifically comparing profit shares…but the flaw is that he was comparing wholly different categories. Talking about one’s share of the pie only makes sense if there’s a single pie at issue.

      • obarthelemy

        How did Compaq’s demise hurt the PC market ?

      • iObserver


        I appreciate your point about adding Microsoft to round out the picture. After all, Apple also produces its OS and quite a bit of its profit derives from that function. I’ve always thought of Apple as a hardware and software bundled vendor. Thus implicitly part of its profits derive from the hardware aspect (as compared with the above) and the software aspect (as compared with Microsoft). Otherwise we’re comparing Apples to Oranges.

      • BuyOnSale

        Given that the marginal cost of distributing the next unit of OS X is essentially zero, the relative profit picture of Macs in the personal computer market should only continue to improve as it sells more units. The reverse dynamic of Windows.

      • I think this is an interesting point. When you look at the revenue of the PC model, both Apple and transitional PC makers use the same basic disk drives, monitor suppliers, assemblers… Where Apple is different is the integration of doing their own software (OS) and their own hardware. Leaving MS’s revenue out of the picture, I think, leaves a gap in the revenue picture.

        I think it would show the real money is in the software and services with Apple and MS capturing the lion’s share world-wide in the desktop/laptop arena. Even if you consider MS making almost 3X more operating income (or profit?? confused sometimes on the whole operating income/revenue/profit/COGS thing), MS is shipping 10X the number of units. This difference of 3X/unit or so, might point to the value of being able to do a vertically integrated IP stack.

      • Walt French

        Surely, part of Apple’s profit margin is the fact that customers value OSX. If we could figure out how much Microsoft profits from Windows (and not Office) that is bundled with new PCs, we’d have a more direct comparison of the two ecosystems — and you’ve argued as persuasively as anybody that the integrated ecosystem is the best organizational unit to succeed.

        As a crude guess, we could add on $35 of margin that Microsoft captures with each new PC. ($3.3 billion and 75 million units is $44 each, but some of that income is NOT associated with new machines.) This might move Apple to less than half of the value-add in the desktop industry but Apple would still have a shockingly large share of the industry’s value.

        (And regards Intel, assemblers, etc: this analysis wonderfully shows that Apple’s integrated approach is not yet in danger of being out-competed by modularization. Except for Windows, Apple buys comparable components as all the PC makers. But it’s the integration — or perhaps, OSX — that provides the obvious value to customers. Given that the PC industry is a solid 30 years old, it’d be interesting to understand why Christensen’s concerns have yet to materialize. That’s maybe even MORE shocking an observation, deserving comment.)

      • Sacto_Joe

        Yes, I think you’ve hit the nail on the head. I wonder if it wouldn’t be useful to look at that larger picture view of ecosystem vs ecosystem on a multi-year basis. It seems abundantly clear that Apple’s is growing, Android’s has been growing, and Microsoft’s has been contracting. It would be nice to see this graphed out. Credit my wife with this idea.

      • obarthelemy
      • narg

        That chart is flawed.

      • obarthelemy

        less than your unsubstantiated critique of it ^^

      • Explain how. Exactly.

      • Profits are all that matter and Android profits in their entire eco-system are pathetic.

      • handleym

        “Given that the PC industry is a solid 30 years old, it’d be interesting to understand why Christensen’s concerns have yet to materialize. That’s maybe even MORE shocking an observation, deserving comment.”

        Personally what I think we are seeing here is a live-action example of the failure of economics to match the real world.
        What Apple sells is “delight”, a feeling that, day after day, your computing device is pleasant to use. IF people were rational, they’d factor that delight (and its daily costs) into their purchases, and there’d be a much more even distribution of profit.

        But people buy PCs the way they buy airline tickets, by price. There are companies like Lenovo selling Apple-class HW, at Apple-class prices, but they aren’t selling very many. People make the decision to buy the cheap product today, and regret that decision every subsequent day. This is understandable. We’ve all made the exact same calculation for airlines (where the low-cost hell only lasts a few hours), and it’s taken me quite some years to force myself, when I buy a new Mac, to pay the few extra hundred dollars and get the top of the line model, because I now know how much I’ll regret not doing so over the lifetime of the computer.

        Essentially people are benefiting from a kind of Apple paternalism which says “you may want a crappy $500 laptop running OSX, but we know you don’t really, and won’t sell you one”.
        There’s obviously a whole class of people that have a real problem with this, but as someone who believes that humanity is deeply flawed, I only fear that one day Apple will no longer have a CEO with these instincts and it will be back to the days of 5 different types of Performa’s, all narrowly segmented, all utter crap.

        [You could argue that I’m wrong here, in that the real problem is Windows — it sucks so much that no-one wants to waste high quality HW on it. Maybe, maybe. I honestly don’t know; but I think this may be overstated by OSX lovers. My point here would be that if Windows truly were the part that were hated, there’d be a more thriving market in alternatives to it, from replacement shells running on Windows (eg an alternative to Win Explorer) to more serious attempts, with more traction, to commercialize Linux.]

      • Joe_Winfield_IL

        I agree that Windows is not necessarily the problem. I think the lack of proprietary diversification among OEMs is the root cause here. Maybe the Windows cohort could benefit from some of the flexibility that Android OEMs enjoy, with UX layers customized. Obviously Windows will never be fully open source or free, but perhaps by giving OEMs some freedom (besides the existing bloatware) to modify stock W8 would create profit opportunities for Microsoft’s customers.

        I too am willing to suffer through a few hours of terrible service for air travel to save a few dollars; I imagine though that if all my travel were contracted to a single vendor on a multi-year basis, it would be a very different story.

      • Chaka10

        I think your comment gets at a key difference between the Android and Windows situations (and not just that the former is free and the latter not). No OEM could change Windows in any material fashion via an outright fork or “just” an overlay — MSFT maintained control of its look, feel and operation.

      • Tatil_S

        Besides, phones make more of a personal item, making consumers care more about how the hardware looks, bring in more opportunities for differentiation through non-software industrial design aspects. Setting up distribution deals through carriers is also not that easy, putting up another barrier to entry. That might be why one Android OEM could become so dominant, whereas in Wintel world, sales were more evenly distributed.

      • What Android OEM is dominant? Samsung is the only one not losing money and they won;t say what their profits or sold devices are. Only shipped which could be and are sitting on store and warehouse shelves.

      • Tatil_S

        Do you think Samsung has been shipping handsets that has been sitting in warehouses for two years? You can load up in one quarter or two by shipping handsets that do not get sold very quickly, but once you add them up over more than a few quarters, shipped numbers will equal sold numbers, unless the situation is as bad as RIM’s Playbook, then the whole thing collapses, but clearly that is not the situation with Samsung.

      • jb

        Do Samsung even report shipped though? I thought it was all analyst estimates. I have no idea how much to trust those numbers. e.g. to my eye the Samsung numbers form a suspiciously straight line since they stopped reporting. There’s no evidence of seasonality or new product launches, etc. If these numbers are accurate then there is truly something different about how Samsung is selling phones vs everyone else.

      • Tatil_S

        No, it does not report official shipment numbers either, so the numbers are probably off by 10 to 20%, as different analysts come up with numbers that are off by about that much, but good enough to make some general observations, such as Samsung’s dominance of Android volumes and profits.

      • BuyOnSale

        But that did not stop some OEM from making something as awesome as the iMac or MacBook Air.

      • twilightmoon

        The problem with your comment is the assumption that the Air has nothing to do with the software stack and the product is merely a hardware based innovation. You forget the efficiency of OS X allowed Apple to squeeze. It onto the iPhone and iPad. They merely stripped out the print drivers and some of the other useless bits.

      • JohnDoey

        That is not true. Dell and HP and others have always customized Windows in the exact same way that Samsung and HTC customize Android. So-called power users of Windows and Android both wipe their devices and put on a “stock” Microsoft and Google system and then customize that themselves.

      • Wrong. One of these things is not like the other. Microsoft doesn’t and has never allowed allowed wholesale replacement of their interfaces. All Dell or HP have ever done is add a dock or some other silliness.

      • NoName

        Installing crapware is not “customizing” Windows to the same level of customization that Samsung does on Android.

        Samsung has additional APIs that are not part of stock Android, that extends functionality, like stylus APIs, dual windows APIs and so on.

        Microsoft would not allow anyone to extend core functionality.

      • You seem to be assuming that PC vendors deliver as much “delight” as Apple…. that’s not been my experience. 🙂

        I think people are being perfectly rational, and in fact, I think are getting more profit from the Macs they buy than they would from PCs bought for the same tasks.

        Productivity is higher on a Mac, for instance, when an individual uses it.

        Many PCs are sold for server jobs where they can deliver less productivity value and thus cost/margins are more important.

        A $10,000 computer is a perfectly rational purchase if the value of it to your business is an extra $20,000 a year…. which isn’t too hard to do when you have highly paid employees. If that’s not obvious, cut the prices by 10. A $2,000 Mac is a better deal than a $1,000 PC if the more expensive Mac delivers $1,001 more productivity each year. (You are up $1 the first year, then $2,000 for the next 2.)

      • JohnDoey

        Yes, the Mac definitely leads to more profits. I have a friend whose freelance photography business was failing because of too many post-production (non-camera) hours and too expensive I-T consultant hours. She replaced her Windows PC with a Mac and produced the same work output in half the time with almost no I-T consultant hours and her business became profitable again.

        She is a classic Intel Mac switcher also. When she bought the Mac it was out of desperation and she did not actually believe it would work. The fallback of being able to turn it into a Windows PC later was the guarantee that sold her. But instead, she ended up replacing her second Windows PC with another Mac.

      • Walt French

        Methinks you under-appreciate economics’ attempt to accommodate tastes and different needs. Whether premium produce that tastes better (even if the nutrients are measurably the same), cars that cost twice as much to get you from Point A to Point B in the same time or MacBooks (I have maybe $3000 in this one, including upgraded disks, memory, replacement battery, …), it can be quite rational to spend more than the bare minimum that a civil service accountant would say was appropriate.

        It doesn’t have to be about “sucks” vs “love.” I couldn’t do my day-to-day job on any other platform than Windows; it’s far-and-away the best productivity enhancer I could have. But also, the Mac has been incredibly good to me, and the iPhone even better, for my personal projects where I can’t call on a small army of IT support that comes with my work machines.

      • JohnDoey

        You are not representative of the typical PC user, though. Most people are much more productive with the Apple products than competing products. And there are entire industries for which the Mac was specifically designed — music and audio, graphics and video, science — and for which the Mac has unique components that make it the cheaper option than a Windows PC.

        If you use a Mac as a Windows replacement — say, running Microsoft Office and a Web browser on it — you miss most of its value. Consider someone who goes the other way, trying to replace a music studio Mac with a Windows PC. They have to add hundreds of dollars worth of software to the Windows PC and configure 3rd party subsystems like ASIO and VST for many hours and there is no guarantee they will be successful in creating a system with the multichannel audio timing precision of a stock Mac, which comes pre-configured for music and audio with built-in, 1st party CoreAudio/CoreMIDI and AudioUnits subsystems. But even if they are successful, the time they spent doing that has blown away any retail price savings. Then they get a virus and the cost savings is blown away again.

        Same for graphics, where a Windows PC must be color calibrated and software added to decode all the Camera Raw formats and provide typography and color management. All that comes pre-configured on a Mac.

        Web developers have a complete Web software stack pre-configured on the Mac.

        And casual users benefit from reduced training costs on the Mac, even if all they do are very basic tasks.

        So it is definitely not about buying Macs for The Shiny. The vast majority of Mac users buy Macs because they have a cheaper Total Cost of Ownership. The argument for using a Mac is an economic one. Right now many CTO’s are reporting that switching from 100% Windows to a mix of Windows/Mac has saved them money overall.

        So you are looking for some kind of magic but it is just economics.

      • Walt French

        I don’t see how your post responds to what I wrote, at all. I’m no stranger to how appropriate the Mac is for many people, including myself — I’ve only had a Mac for my personal machine ever since the original. Yet most of my day jobs, for a host of reasons, have been at places where no software was available for Macs, and often even specialized hardware was not available (in the late 80s, “hard disks”, for example), leading to a total specialization on Windows in my industry.

        As a non-proseletyzer, I don’t fight it, either pro or con, and I won’t debate your points because they don’t address my point that a computer is not defined just by its price. Likewise, @handleym’s “delight” more-or-less means to me, the best way of doing something that I want to do, and that’s not unique to any one platform, either.

        As to “most people” being more productive on a Mac, despite using Windows, that’s a debate I’ll let others have.

      • I’ve used Mac’s since the 128k and I call BS. I used hard drives in the 80’s on Mac’s. They were sold by companies who even only sold hard drives to Mac users so obviously there was a market.

      • Hosni

        YouDOknow! – The Mac XL (a Lisa emulating a Mac) had a 10MB hard drive in 1985. The Mac SE was the first compact Mac with a hard drive and the Macintosh II was the first full-size ‘real’ Mac with a hard drive; both were introduced in March 1987.

        An IBM PC (XT-5160) first shipped with a 10MB internal hard drive in 1983.

      • Walt French

        Some checking finds Wikipedia saying about the Apple Hard Disk 20, “as a result only the Macintosh 512K could access it; the original Macintosh 128K did not have enough RAM to load the new file system.”

        (The article goes on to observe how third parties couldn’t use the hack that allowed the hard disk to transfer data faster than the serial port allowed.)

        Point taken that as early as late 1985, I *COULD* have traded my original Mac and then also bought a hard disk, but got stopped by the economics.

      • twilightmoon

        I used a hard drive with mac plus. This was external and was prior to 1990. Not sure when you had yours but Macs ha them pretty early, around the time they first came out.

      • evildog

        The “Virus” nonsense is a massive red herring posted by bleating sheep.
        In 20 years I have had one virus and that was when someone used my machine to try to download a massive amount of stolen music. Even then all that was lost or damaged was a few files which were backed up.
        I don’t even know anyone who ever got a virus, sure I know lots of people who have had email accounts hacked, computers stolen etc. But really trotting out that tired old dog time again to try to prove how great your brand choice was , is just old and boring.

      • BuyOnSale

        ” IF people were rational, they’d factor that delight (and its daily costs) into their purchases, and there’d be a much more even distribution of profit.

        But people buy PCs the way they buy airline tickets, by price.”

        You are completely missing the point, and the facts. For there are sufficient people who are willing to pay up for “delight” that Apple commands the majority of the profits in every category in which it competes. The whole point of this article, I think.

      • JohnDoey

        The PC industry is closer to 40 than 30. The IBM/Microsoft PC is younger than the industry itself.

      • dmarcoot

        I would say Windows 8 sucks. Even if it was on my Macbook, it would still suck.

      • You’re dreaming. It’s the latest mediocrity from Microsoft that is always the issue.

      • ktshanti

        You make some good points about Apple design decisions, but I think the past history of OEMs reveals why the current PC market is stagnating today. (Good general insight again, Horace. ;))

        Your last point about “more thriving market in Win Explorer alternatives” is a bit naive given the past anti-trust lawsuit against Microsoft in 1999. Gates/Ballmer intentionally enforce a homogenized Windows UI. The 30-year history of desktops shows there has been minuscule innovation from PC OEMs…even when they were allowed grudging profits from Wintel. Microsoft blocked PCs innovating because Windows is a one-size-fits-all OS (even the tablet or CE flavors were minimally changed from desktop Windows). Gates even threatened Andy Grove over dinner, when Intel wanted to add hardware-accelerated voice-recognition software circa 1997.

        Steve Jobs had voiced in various interviews that while Macs, iPods and now iOS devices have always strived to be “beautiful boxes”, OSX/iOS & iCloud (and iTunes) are the differentiators.

        I disagree, a bit, with Horace about Windows profits being relevant. If Microsoft wants to hoard $50B of reserves while their hardware partners bleed, that’s their choice; but as they get out-innovated by a vertical Apple with Fusion Drives, better battery life, lower power consumption, easier screensharing with iOS/Apple TV, etc…something will give.

      • Apple also sells high quality, a modern OS, high quality apps with a consistent look and feel, and especially much better service and support than anyone else.

      • wendoman

        OS X is a poor old 1960-era UNIX. It’s slow and outdated.
        File system permanently lost integrity so user needs to repair permissions because UNIX core can’t properly support ACL for files.
        No CUDA, no Intel QuickSync encoding, even OpenGL in OS X is two major version behind.
        All Mac versions of cross- or multi-platform apps are bad implemented and buggy as hell: TeamViewer, Chrome, Firefox, XBMC, Flash, Java etc.

      • NoName

        Funny how Microsoft doesn’t see things your way, WRT UNIX.

      • wendoman

        Oh common! How many web servers you carry everyday in your bag? How many Top-500 farms you runs at your home? Who cares about this single purpose non-interactive custom coded stuff?

      • NoName

        It was to show you that your arguments are bullshit. If UNIX sucks,
        explain why the top 100 fastest computers in the world are mostly UNIX?

        Modern file systems are journaled, both Microsoft and Apple uses it:

        As for CUDA, to use your own words, “Who cares about this single purpose non-interactive custom coded stuff?”

        But wait, what is this I find over at NVIDIA?

        As for Intel QuickSync: – oh, look, OSX has it.

        Don’t know anything about teamviewer.

        Chrome and firefox work fine.

        Flash is a piece of shit even on windows.

        Do you have anything real? Seriously.

      • wendoman

        All top workstations 100% on Windows: AutoCAD, Bentley, CATIA etc.
        All UNIX workstations died ten years ago.

        OS X file system carries ACL addon over poor old UNIX r-w-rw garbage and permanently losing permissions.

        CUDA&QuickSync – I have free video converter using both tech and it recode 1 hour video for iPad at 5 minutes. OS X QuickTime X converter recode same video at 1 hour – QuickSync doesn’t work on Mac. I tried it. Third party software for OS X with this tech absent.

        *NIX can work in one case: custom written code for single purpose devices.

      • twilightmoon

        I don’t know if I agree that OS X is slow and buggy, maybe all high level GUI based operating systems are to a point, but I do agree that flash is garbage on the Mac. I can’t speak to the other multi platform stuff but it does seem that much of that stuff gets the ‘also ran’ development status on Macs despite the huge and growing audience.

        I’m not a developer so much of your comment doesn’t really relate to what I do, I am guessing that you are?

        What’s your platform of choice and why?

      • BuyOnSale

        ” Except for Windows, Apple buys comparable components as all the PC makers. But it’s the integration — or perhaps, OSX — that provides the obvious value to customers. ”

        That is only true if by “the integration” you mean–at least in large measure–the design and quality of the housing. There is simply nothing that even comes close in beauty and elegance to the new iMac. And even the MacBook Air and MacBook Pro Retina leaves the competition in the dust. Same thing when comparing iPhone and iPad to the competitors.

        Now to many, that sophistication in form factor isn’t worth paying up for. No problem. They can buy from someone else. But for those who want the utmost in design sophistication, there is only one choice. And I’ve seen nothing to suggest that is changing.

      • Walt French

        I agree completely that Apple puts a lot of love into their designs. First class materials and techniques, absolutely.

        But despite how Apple is said to monopolize unibody milling machines, or is the first to apply some new welding technique, those technologies are available to any other OEM, at approximately equal cost, if they choose. A large part of the higher product price goes back out of Cupertino to the companies that assemble iPhones, or make the machinery.

        A “gross margin percentage” approach tends to favor the idea that expensive products mean higher profits. But every dollar that Apple could cut costs by, means maybe 50¢ of cheaper selling price, and 50¢ higher profit… but on more machines because of the lower retail price. So Apple has to make sure that they aren’t just selling glitzy stuff, that the hardware is itself a good value. That (potentially, heh) puts them right back in competition with the higher-priced machines that people buy from Dell, Sony and others.

      • You of all people should know those things are not available to all at equal cost. Apple pays cash up front and buys up all production. In some cases such as with LG they have even put $$$ in R&D.

      • JohnDoey

        No, the integration is not just the outside.

        A Mac comes out of the box color-calibrated so that when you edit photos, you are fixing the color, not wrecking it. A Mac comes out of the box able to decode and render all camera raw formats. Out of the box it is a music and audio workstation, video workstation, Web development workstation.

        That means the Mac integrates with still cameras, movie cameras, musical instruments, audio gear, and Web servers.

        The Mac/PC is an integrated suite of components, but it must also integrate with pretty much every other device in the world. Macs are pre-configured to just work in almost every situation the user may come across. Windows PC’s are pre-configured to run Microsoft software. A gigantic difference.

        The shiny box on the Mac is a free bonus. It merely represents the thoughtful design, engineering, and care that was put into the entire product. The money you may pay extra for a Mac is returned in reduced configuration and training time/expense, reduced downtime, increased productivity and work output compared to competing devices.

        The plastic black/white MacBooks at one point represented over 50% of Macs, but they were not much to look at and today there are Windows PC’s that outclass them in looks, and even a Chrome PC that outclasses their looks. But Windows/Chrome PC’s do not return the value of a Mac.

        On the Mac, The Shiny is equivalent to the Intel Inside and Genuine Windows stickers on generic PC’s. Basically, an ad describing the overall value.

      • NoName

        You forget, the rumors of the extra discounts Apple got by going Intel 7 years or so ago. Apple even had Intel’s help in designing the original macbook pro motherboards.

        Apple also normally gets first dibs on cpus, and you saw how Thunderbolt was demoed by Intel on OSX 2 years before it officially launched.

        So, not all OEMs are equal, and Apple most probably get cheaper components and of higher quality.

      • JohnDoey

        No. Windows and OS X are expenses for PC makers, same as Intel CPU’s are expenses.

        Apple does not profit from OS X or iOS — they profit from Macs, iPads, iPhones, iPods. OS X and iOS development is an expense.

        A PC — whether Apple or Dell — is a suite of components, assembled by the PC maker. You can examine the margins of the PC maker or the margins of PC component makers. You can’t add them together arbitrarily. PC components are an expense (negative number) for PC makers, not a profit center. The PC maker only profits on the entire PC.

        An analogy would be a movie producer profiting from a movie. You don’t add the $10 million the movie producer paid Brad Pitt to the movie producer’s profit margin. That $10 million is income for Brad Pitt, but it is an expense for the movie producer, who paid it out. If hiring Brad Pitt instead of a lookalike who can’t act sells more tickets, that may make the movie more profitable overall, but the money that was paid to Brad Pitt will always be an expense.

      • twilightmoon

        Good point.

      • Really besides the point unless Microsoft starts making PC’s. They aren’t making money off their “tablets” thats for sure. It’s looking likely they will have to make laptops and desktops too since poor PC sales and margins are killing Dell, HP, etc. Or quality and features like screens will be even worse on PC’s in an effort to get some sort of profit. Still no PC’s with retina displays which is pretty surprising.

      • Ian Ollmann

        I can’t say I’ve read all of Christensen’s works, or even all of one, but I think this chart should inform us that no matter which level of the ecosystem the profit concentrates in, the vertically integrated player will have captured it.

      • Walt French

        Nor I. But your point agrees with mine: whatever the comparison, comparing the PC hardware brands with the Mac integrated approach is an apples-to-oranges mismatch.

        Does it show that the value-added of commodity computer hardware is quite a bit lower than Apple’s hw+sw integration? Absolutely. But I’m simply asking for integrated-vs-integrated (or hw-vs-hw).

      • mjw149

        I think it falls apart as an analysis, because PCs aren’t “integrated ecosystems” Even after the release of Windows 8, MS doesn’t have a successful app store. The killer apps for Windows are generally Office (which is ‘integrated’ weakly), browsers (where they don’t dominate), Itunes and Steam, content/apps stores that they don’t own. That’s where it falls apart as an analysis. You can argue that Mac OSX is also an open platform, but the killer apps are all Apple-made or Apple-distributed, to a much greater degree.

      • Chaka10

        Perhaps easiest to just estimate the cost for unit of the Windows license?

      • Joe_Winfield_IL

        Your point about disk drives reminds me, Apple is absolutely making more money than the field in this space. Everyone else is putting the same Western Digital, Sandisk, Samsung, etc. hard disks and flash memory as Apple, but they are allowing users to buy a minimum disk at purchase and upgrade later. Apple is using its proprietary OSX as a lever to compel users into a bigger initial purchase.

        You can’t buy half an Apple product; you take the whole thing on day one. By moving to unibody construction on almost all of its PCs, Apple is forcing users to choose a memory configuration upfront that will last the life of the machine. Apple is marking up flash on PCs just as it is with mobile devices. If the ASP is already much higher, there is likely much less price elasticity for another $100 upgrade among Apple customers than among their competitors’ customers. Retina displays in Macs only strengthen Apple’s ability to charge for more storage.

      • JohnDoey

        It is not true that Apple is using the same disk drives as other PC makers. In the first place, Apple is shipping SSD more than other makers, but even if we only look at spinning disks, the ones Apple buys are higher quality than the ones other PC makers use. The Apple components are better models and receive more testing before they leave the manufacturer.

        It shouldn’t surprise you that the hard disk in a $1200 notebook is a higher quality part than the are disk in a $400 notebook.

        There are stories from inside component makers where there are going-to-Apple production lines and going-to-Dell production lines and the Apple lines have additional testers. Even though in that case the model number may be the same, the Apple parts are better.

      • Joe_Winfield_IL

        That may very well all be true. My broader point was about Apple’s ability to mark up disk space. We have certainly seen it in phones, with the ASP remaining relatively flat, even as less expensive models have been introduced. Apple has managed to sell users on larger storage capacities to match the larger apps and higher resolution photos, while most other vendors are satisfied to include some kind of expandible solution such as SD card readers.

      • Everyone marks up disk space. You have no point.

      • Joe_Winfield_IL

        Yes, everyone marks up memory. The difference is that Apple customers actually opt to buy the upgrades. Nobody else is selling 64GB phones in any real quantity because other manufacturers make it easy to add storage with SD cards. Unibody construction and soldered flash memory force the same decision in Macbooks.

      • This is correct. I’ve been in the Foxconn factories and seen this.

      • wendoman

        No. The only difference between MacBook Air and ASUS Zenbook is a pre-installed OS.
        Intel CPU, aluminium body, SSD, display are mostly the same. As Air as Zenbook are assembled in China (Foxconn, Compal, Wistron – who cares?)

      • wendoman

        So adding 3.3 billions into chart we get Apple profit share to 20%.
        It’s slightly bigger than Apple’s unit shipment share.
        Very good, but not so amazingly great as in your click-hunting chart.

    • 123stilllearning456

      Perhaps, if you want to consider the larger Windows PC system. But your observation does not in anyway help HP, Dell etc. make money, so if we want to consider the health of the hardware side of the business then there is a problem.

      • Well he’s is talking about the economic value of the PC market. Microsoft’s profit directly ties into the that, especially since it seems to dwarf the profit of everything else . If you want to simply look at this is purely hardware manufacturers vs apple it’s not a very useful for determining the overall health of the PC Market.

      • I am only measuring the health of the overall PC market vendors. With the Surface, Microsoft is one of them but until it becomes one of the top 5, it will not be relevant to this discussion. The health of the PC market depends today to a large degree on the health of the OEMs

      • Sacto_Joe

        Yes, and seeing that stark difference leads one inexorably to ask why, which leads one inexorably to Apple’s integration of hardware and software design. And for me at least, that leads me to the interfaces, where Apple was, and remains, a pioneer. Those interfaces depend on a very deep integration of hardware and software, whether it’s WYSIWIG or the mouse or the touch surface or voice or (some day) direct mind-to-computer integration. Which came first, the integration or the interface? Doesn’t matter: They’re mutually dependent.

        You are perfectly correct to look at the bare facts of PC vendor health. If you hadn’t, we wouldn’t be looking at the implications!

      • Horace, how do you square Apple’s profit share with Claytons theories? Seems like another case of Apple disrupting that can’t be accounted for by Clayton’s work.

      • See this post (late 2010):
        Briefly, the market came around full circle as size and mobile jobs to be done moved the basis of competition back in favor of integration.

      • Sacto_Joe

        I disagree. The Microsoft ecosystem is bifurcated by choice, just as Apple’s is integrated by choice. You are implying that Microsoft is unscathed in all this. That is clearly not the case.

        While I do agree that it would be useful to determine just exactly how the various ecosystems are faring over time, part of doing that successfully involves looking at manufacturers of computer hardware as distinct from manufacturers of computer software. To imply as you do that it is not useful is – wrongheaded.

      • I am not implying that they are unscathed by the declining PC sales. I am just saying the health of the Windows PC market IMHO should include the health of Microsoft w/ regards to windows. As other commenters have stated, if HP wants out because it’s not lucrative enough, someone else will want in, even at the lower ASP and profit than Apple. These vendors aren’t in the same game as Apple, even if they are selling a similar product.

      • KirkBurgess

        Its not a question of whether or not an OEM “wants out” of the market or not – the fact is the entire market is shrinking. OEMS shipped 15-20% fewer machines in the 1st quarter, there is no-one “stepping in” to pick up that drop because there is simply no customers there to buy them.

        In declining markets it is very rare to see new entrants. The opposite (consolidation) is far more likely to happen.

      • Sacto_Joe

        What I find fascinating is why it’s shrinking, which is effectively the same reason for the PC’s success over the mini’s and mainframes and centralized computing decades back: Something’s come along that is “good enough” in a lot of cases and is cheaper, more portable, and sexier. But note that the “big iron” never went completely away. And thus we see Apple’s Macintosh opportunity. It returns great value, it can run the legacy stuff (Windows), AND it can interface with the sexy new stuff! Therefore, it’ll be the last man standing, period.

        And that, in a nutshell, is why I think Microsoft and Apple should call off the feud and partner up, big time! True, it’d be the death knell for everything but the most commoditized PC’s, but heck, Apple’s already got most of the profit as it is. Do I think it’ll happen? Not really. But Microsoft would be smart to sue for peace and settle for making a ton of money.

      • Sacto_Joe

        “Well he’s is talking about the economic value of the PC market. Microsoft’s profit directly ties into the that, especially since it seems to dwarf the profit of everything else” pretty closely reads that they are unscathed, but I won’t quibble. For the rest, you’re creating a kludge of a comparison at best, and for very little potential gain in clarity. Apple’s ecosystem can’t be directly compared to Microsoft’s ecosystem precisely because, as I said, one is bifurcated and the other is integrated. It’s like comparing a man on a bicycle to a cheetah. Besides, the reason a Mac and a PC are comparable at all is because you can often decide between them to do the same job. When that happens, guess what: The Mac BECOMES a PC, right down to running Microsoft’s OS in native mode. So now you’re stuck trying to add some of that Microsoft profit back onto the Apple hardware!

        Sorry, folks, but at bottom Horace has it right in only taking the comparison so far.

      • You’re not reading correctly then. Horace didn’t show trend lines, so I made no comment on the trajectory, or whether Microsoft is doing worse. But even with the decline in sales, they still making much more profit than Apple is on Mac, which hardly portends that the PC economic model is doomed. The worst case scenario is Microsoft get into the PC manufacturing business heavily, and if they meet most of the price points/configurations that the current vendors offer, it will be bad for those venders but much, much better for Microsoft….

      • JohnDoey

        Substitute any other component maker such as Intel or NVIDIA for Microsoft and you’ll see that Microsoft is not relevant to the discussion of PC maker profitability. Microsoft is an expense for PC makers, not a profit center.

      • BuyOnSale

        While I understand why Microsoft went with a licensing model for Windows in its early days, maybe the smartest thing for them to do now would be to stop licensing Windows. Instead, go into production themselves. Integrate. That would at a minimum end the race-to-the-bottom pricing. And if the integration would likely lead to a product that is at least marginally better than the current offerings.

        Seems better than the alternative, in the long run.

      • Sacto_Joe

        Can’t argue that that wouldn’t be a better place for Microsoft to be in, but they can’t just click their heels together and make it happen. A LOT of companies would be shafted, just as an example of the top of my head. I think they’re pretty much going to be forced to ride this into the ground.

      • narg

        Isn’t that what Microsoft is doing with Surface?

      • Walt French

        I can tell you that the IT people where I work see “HP, Dell, etc.” as mere wagons for rolling out the Windows ecosystem. No loyalty to any brand, which is unsurprising because they have an undifferentiated offering, service level, etc.

        In their mind (mine, too), Ananth’s proposal makes sense.

      • Chaka10

        Problem is, the wheels on the wagons for the Wintel ecosystem are wobbling a bit — perhaps time for MSFT and Intel to reconsider their pricing, ie, how much value they are extracting out of the PC end-pie?

      • That may be a tough, yet necessary pill to swallow.

      • Joe_Winfield_IL

        Toward what end? Shrinking profit per unit won’t likely affect the total volume. PCs are losing share to alternative (mobile) computing solutions. They would simply get a smaller piece of a smaller pie, and shareholders would be in revolt. Also, what makes you think the top vendors are capable of holding on to any price break from Wintel? They have shown zero pricing discipline up until now, and would likely just pass the savings on to end users. Eroding ASP has MUCH more to do with shrinking profitability than does growing cost from Wintel.

        The real solution for both Microsoft and Intel is to figure out how to get a piece of the new market. So far, Intel’s chips have been seen as too power hungry to run iOS and Android devices. Windows 8 is obviously off to a lackluster start as well, which is almost as bad for Intel as it is for Microsoft.

        Fortunately, both companies have other operating divisions that generate a lot of profits. For the next couple of years, the servers that power the cloud side of mobile computing are probably a better opportunity for Wintel than the client devices. The question is why Microsoft, and by association Intel, continues to focus so much energy on the retail end user who so clearly is drifting away.

      • BuyOnSale

        “The question is why Microsoft, and by association Intel, continues to focus so much energy on the retail end user who so clearly is drifting away.”

        Not sure what “energy” you’re talking about. As far as “capital”, as long as the return on invested capital is attractive for Windows and Intel PC chips (which is certainly is now), why would they NOT invest that capital? It’s not like either company is capital-constrained. They don’t have to make some tough choice between consumer PC’s and servers; they can do both.

      • rational2

        They have made so much money from the retail customer in the last 25+ years. They can’t stop fighting for the retail customer just because of a couple of years of (modest, so far) downturn, compared to the 25+ years of increasing profits.

      • handleym

        I think you have the causality wrong.
        Suppose MS or Intel drop their prices by $50. What do you expect to happen?
        (a) The PCs stay the same price, and get $50 better (by using better components)?
        (b) The PCs stay the same price and each manufacturer gets $50 more per unit?
        (c) The PCs drop in price by $50?

        I assert, unequivocally, that (c) is what will happen. And so now not only HP and Dell, but also MS and Intel (and the innovation they represent) are struggling.

        This is an inevitable consequence of how the market is setup, along with human limitations (which I discussed in a comment a few lines up). Yes it sucks, but that’s how it is today. You fix it by something dramatic (like MS selling a truly desirable high end PC, unlike the not-so-desirable Surface), not by diddling with the prices connecting the various pieces together.

      • Chaka10

        Hmmm, let’s stipulate that MSFT needs, and will continue, to look for that dramatic product. That aside, why are you so certain that the PC market wouldn’t be headed for some combination of (a), (b) and (c)? … I.e., that in a unit volume declining PC market with strong Mac competition for available profits, and dominating the high end (and what if Apple cuts Mac prices for a market share play?), why wouldn’t the future of the PC market depend on some combination of better products and lower prices, and in that env’t where the OEM vendors still need to survive and make some profit margin (even small), why would you expect MSFT and Intel to be able to sustain their profit margins? And even IF they could sustain their per unit margins, perhaps it makes sense for them to lower those margins to help drive volume growth, or do you think the PC market is price in-elastic?

      • Joe_Winfield_IL

        The issue is that there are dozens of PC vendors, selling almost exactly the same product. If the cost of the key components to the product were to drop, it would drop for the whole market. Perhaps there would be a brief period of sustained pricing discipline, but eventually one of the vendors would go for volume and give back some of the savings as a promotion. Competitors would IMMEDIATELY follow suit, and eventually Wintel would be directly subsidizing the retail price of PCs.

        It has happened in air travel for decades, and I would argue that air travel is significantly less commoditized than PC hardware. Routes and times vary, and airlines have reward systems for loyal customers that OEMs do not. Despite all of this, the entire multibillion dollar industry has been totally un-investable forever. Only recently has this changed, and the key factor has been the bankruptcy of weaker players and heavy consolidation. Think about the capital required to start an airline, then contrast it with the capital required to assemble or market PCs. Even given the serious investment, the airline industry has needed near collusion to pull itself out of the doldrums in the last couple of years.

      • Chaka10

        Yes, but a key feature of those restructurings have been to renegotiate the arrangements with pilots and other employees (usually unions). I would suggest that MSFT and INTC seem similarly unlikely to escape unscathed if the Wintel PC industry were to undergo the stress driven restructuring as have occurred in airlines.

      • Joe_Winfield_IL

        I’ve spent my entire career in non-transparent commodities trading businesses. Somehow, each time an opportunity presents itself to a segment of the industry (suppliers, logistics, trading companies, end customers), it finds a way of evaporating pretty quickly. The biggest driver of profitability, for all players in the value chain, is demand from the customers’ customers.

        If consumers aren’t consuming, it’s hard to make a buck as a middle man. When the markets are strong, everyone makes hay. When markets are flat, someone makes a play for volume at the expense of margin. Almost invariably, others respond by matching the margin slashing to protect volume. Everyone loses.

      • Walt French

        to your point: out of the doldrums and into serial bankruptcies.

      • BuyOnSale

        “do you think the PC market is price in-elastic?”

        For the OEMs, this is mostly irrelevant. For given the commodity nature of what they’re selling, they will always compete away any outsized profits from each other. That is life in a commodity business. It’s all about the moat.

      • Chaka10

        Yes, they sell the same product because MSFT and INTC give them the same product to package and sell. But again, in a shrinking unit volume market, facing competition from Apple, I think MSFT and INTC may have a meaningful decision to make on pricing vs volume (in order to max profits) and that decision would depend on their view of the price elasticity of PC demand. OEMs cannot sustain OUTSIZED profits selling a commodity product, but (a) they must make SOME profit to stay in business, (b) MSFT and INTC do not sell commodity products (PCs are, but Windows and Intel processors are not), and thus they will have a volume vs price decision to make as the market for their product compresses. This sort of decision is easier for a vendor that controls its full value chain (a la Apple, eg in its decision on a “cheap iPhone”), but it’s complicated in the Wintel PC situation bc of the separation of value in MSFT, INTC and OEMs.

      • BuyOnSale

        Choice “c” indeed. Without one vendor having a moat, this will always happen.

      • BuyOnSale

        “- perhaps time for MSFT and Intel to reconsider their pricing, ie, how much value they are extracting out of the PC end-pie?”

        It is pretty much irrelevant (not completely, but mostly) how much of a “tax” Intel and Microsoft impose on the PC vendors. What matters is that they’re all selling basically the same thing. None has even the slightest hint of a moat. And without a moat, there will be no healthy profits. Period.

      • 123stilllearning456

        I would agree as a customer. I was looking at it from the OEM perspective. Does serving get them much, according to the charts it is slim pickings

    • No. PC sales profits are just that.

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  • obarthelemy

    As usual, that view of the PC market is invalid. 2 facts:

    1- 95% of PCs use a Windows license. that’s actually *the* most profitable part of PCs. Yet it does not appear in that “PC market” overview.

    2- Homemade and custom-built PCs are left out, though they make up most of the high-end, high-margin consumer desktop PCs.

    Then wild conclusions about Apple’s share of the sales and profits profits are drawn.

    • Yes, MS’s Windows revenue is left out. Long discussion on that already.

      No, home brew is a minor aspect of overall revenue and profits.

      • Joe_Winfield_IL

        Not to mention that a 14% reduction in PC sales YoY obviously is not a good harbinger for Windows revenue.

      • SemiMike

        Variation on that “minor” thought: When people “home brew” online with Dell or others, they start with cheapest PC, then add what they really need, the prices jumps, and then the may move to Apple for reasons discussed or go ahead and buy the better equipped PC.

      • obarthelemy

        Home brew is not customized Dell: it is getting your own parts and building from scratch. That, and boutique PCs, are really your only solution in the Wintel world if you want really high-end consumer or even prosumer stuff.
        That high-end consumer segment is completely filtered out by only looking at the top, entreprise-focused OEMs, which makes the whole analysis rather pointless.

    • Space Gorilla

      I seem to remember a number of reports over the last few months that put Windows much lower than 95 percent share now. But I suppose it depends how you count. If you look at consumer share, Microsoft is waaaaaaay down. If we count every dumb terminal, server, and app, I’m sure the picture looks much better. But it’s hard to get away from the big picture trend, Microsoft and Windows are increasingly irrelevant and there’s no reason to think this trend is going to turn around.

    • orthorim

      +1 for mentioning the profits not shown above: The windows license profits.

      The article is still valid though as the PC makers don’t get anything from the windows license profits. I think that will have to change. Microsoft will have to give back in order to keep the PC makers running.

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  • BoydWaters

    If Dell, HP, and Lenovo wish to follow IBM in exiting this business, how will Microsoft respond?

    • obarthelemy

      Do they need to ? Other OEMs will step up.

      • I think MSFT is going to be forced into doing more actual MSFT branded computing devices (Surface being the first) and more awkward competition with their customers. The fact that MSFT was frustrated with the PC OEMs ability to innovate was part of the impetus for Surface.

        Of course MSFT and Intel have been instrumental in turning the PC OEMs into low-margin device makers with shallow R&D capabilities compared to companies like Apple.

      • obarthelemy

        Probably. But it might be a lost cause:
        – premium customers (profitable, but not *that* many) already go to Apple. How many premium brands can there be ?
        – premium, design-oriented Wintel brands and product lines (Sony) haven’t really have much success. Maybe because they’re bad at it, maybe because justifying paying twice as much for the same features but in a nicer/smaller/lighter box is a harder sell when there are actually cheap boxes to compare with.

        Maybe the MS brand will be legitimate at the high end… maybe there is not much high-end for Wintel stuff, and whatever high-end there is is features-, not design-, oriented. See: Lenovo.

    • The response has already happened: Surface.

    • orthorim

      The fact is that MS needs hardware to sell in large numbers in order to sell Windows in large numbers. So as hardware numbers fall, they will have to put some of their Windows OEM profits into hardware.

      A PC alone might lose money, but add Windows OEM profits and it still makes money.

      So MS and the PC makers are going to hash that out – it is inevitable that there will be a redistribution of profits from Microsoft to hardware makers.

      Whether MS makes strategic investments or outright provides bonuses for sales (I think they already do that actually) we’ll see. I don’t think they’ll become a hardware maker themselves. They might buy one and run it as an independent subsidiary just in case though, sort of like Google bought Motorola.

  • So let’s game this out 3 – 5 years . . . MSFT and the PC OEMs are certainly aware of what’s going and likely feeling some desperation with what is only a growing non-Windows and non-x86 computing ecosystem.

    1. Does MSFT take the Surface experiment much farther and introduce more and more of it’s own PC’s ?

    2. What about the PC OEMs? Are they trapped with no good strategic options other than consolidation, sell-offs, buy-outs (a la Dell?)

    Somewhat ironic if #1 comes true – Apple was in the same position pre-Jobs comeback in the mid-90’s when they were making Macs and licensing Mac OS to several PC OEMs– MSFT will of course not have the option of cutting off the PC OEMs like Jobs did – too much revenue at stake to contemplate that

    • pk_de_cville

      Wouldn’t the PC OEMs consider full bore support of Linux if MS continues with Surface?

      • obarthelemy

        The issue is not the PC OEMs, but the applications suppliers. MS will be very reluctant to port their Office suite and other widely-used client apps for political reasons, other big devs will shun the cost and headaches of porting and supporting their software, and custom developments will incur large porting costs.
        PC OEMs have been supporting various versions of Linux for a while now.

      • narg

        OK, then why have they announced Office for iOS??? Or did you forget that?

      • obarthelemy

        What company *only* uses Word, Excel and Powerpoint ?

    • Space Gorilla

      If current trends/usage are any indication, 3 to 5 years out every Fortune 500 company will be chock full of iPads running custom apps.

    • JohnDoey

      I think they die off. The generic PC business was always about providing a half-price Mac. That is the iPad business now. You can get a half-price Mac directly from Apple and it is half the size and weight and double the battery life of a similarly-priced generic PC and requires 1% of the training and maintenance and its apps are more diverse in functionality and also cheaper.

      Maybe Microsoft makes an alternative iPad (not a small desktop PC,) or maybe Google makes one (not a big phone) but I don’t see any future for HP and Dell. They have been replaced by Foxconn and Pegatron. The Windows CD/DVD has been replaced by an SSD with a device wrapped around it. Compare Windows Ultimate DVD at $399 and iPad mini at $329. So Surface is the way forward for Microsoft but ironically their software is a decade behind or more. There is still no touch MS Office! They need a NeXT-style reverse acquisition and management replacement real bad.

      • Chaka10

        I wouldn’t be very certain about the “they die off” result so long as we have folks like Walt French still saying “I couldn’t do my day-to-day job on any other platform than Windows; it’s far-and-away the best productivity enhancer I could have.” I see In that discussion the old theme — Mac is great for personal (and maybe small business*), but need Windows for the large enterprise. I also note that Dell’s somewhat better PC positioning, vs other top vendors, seem to stem from its position in the enterprise. This raises for me, again, the question of Mac penetration in the enterprise. What are the barriers and is iOS penetration into the enterprise a potential leverage for greater adoption of the Mac in that environment?

        *the suggestion that Mac are penetrating small enterprises raises the question, how much of the enterprise PC market is large vs small/medium enterprises?

      • Space Gorilla

        I’ve been surprised by iOS penetration into enterprise, in large companies, Fortune 500. A lot of the work that needs to be done is capturing/managing/measuring data, and a custom app on an iPad is easily the best solution in most cases. It’s quick, easy, no learning curve, mobile, cheap to support, cheap to implement. There seems to be an explosion of iPad use in business.

      • Guest

        My wife just got told that her company (Bristol Myers Squibb) is giving
        her an iPad for use in the field. Multiply that times thousands of reps

        Her understanding is that she will be loosing her PC
        in the exchange. She is a pharma-rep. All they have EVER had is PC’s.
        Adding the iPad is one thing, but if it does end up actually replacing
        the PC, and the experience tests positive long-term… then Apple
        hardware replacing PC hardware is a huge thing. There is no-way to spin
        that as a positive for PC or MSFT.

      • SpeechGuy

        Pharma reps have been getting iPads for a while. They used to travel with Tablet PCs. Ipad with Cellular seems like a natural fit for the field rep.

      • Space Gorilla

        Yes, I had some awareness that the iPad was making inroads into business use, but I’ve really been surprised at how widespread it is and how fast it is happening. This is becoming a common story. I’ve also seen in my own experience, most of the business clients I deal with who used a Blackberry just a couple years ago, now use iPhones (and the odd Galaxy). That’s anecdotal of course, but it does feel like a trend.

      • obarthelemy

        I think tablets are filling a need for easy-to-use, low-admin, closed, and mobile devices.
        The question is whether Apple can hang on to the market long-term, for the same reasons Macs are not prevalent in the Entreprise market:
        – cost
        – single source
        – Apple’s not focused on the Entreprise market, which actually requires stodginess

      • Space Gorilla

        I would characterize it differently. The iPad fills a need for an easy to use mobile device (low training and support cost) that can capture/manage/manipulate data AND provide a framework for custom corporate apps. Anyone who deals with the corporate world knows what an attractive package that makes. I doubt Apple will gain or hold onto a majority of the enterprise market, as with most markets Apple is involved in, they will dominate the ‘best customer segment’. When it comes to Apple analysis we really have to ignore the Church of Market Share.

      • obarthelemy

        I think data entry and data consultation can be done on any device, except maybe when you need specialized visualization setups (several or larger screens, 3D..). What still needs a Wintel PC is data manipulation.

        ie, for construction, the on-site guys have tablets to look up plans, purchase orders, and fill out work forms. Back in the main office, architects and accountants have Wintel PCs. Sales reps have tablets filled with pretty renders and order forms :-p

    • Accent_Sweden

      For Microsoft to transition to producing its own hardware on a massive scale, it would have to stop selling Windows to OEMs since they’d undercut any Microsoft effort to take the high-end. Windows 8 would need to be the last software Microsoft licenses to others. MS would need to make Windows 9 exclusive to its hardware. All the OEMs would scramble to find another OS and compete with Microsoft and Apple but Microsoft might see this as the only option if the PC industry collapses far enough. And it might be. I’m sure Google would gladly welcome the OEMs but it will likely be a long time before that platform would be mature enough for most businesses.

      • obarthelemy

        Or not: look at Surface. Or Google Nexus. A device branded by the OS maker does not have to be exclusive, can even be built by a partner.

    • narg

      PC’s are not dead, and will never die. Shrink a little more at most, but they will continue a growth pattern at some point in the future.

      • rational2

        Personal Computing devices, yes. PCs in their current form (desktop/notebook), probably not a growth market. They have their uses but a significant part of the population can handle their info/content needs with a mobile personal computing device.

  • Apple dominating the profits in pads and smart phones is widely recognized. Dediu suggests that we ought to add PCs to that list. What about MP3 players? Apple still dominates that as well. It’s considered passé because it is a dying market whose functions have been absorbed by new categories. Other players withdrew from the market after suffering continuing losses as Apple’s iPods dominated the high end…WAIT! Doesn’t that sound familiar?

    What Apple did to the MP3 market may well be what happens in the other markets it dominates. After it decimated the high end of the MP3 market it sure looks like it took advantage of the high ground to progressively produce ever cheaper “iPods” that really did draw all the air out of the market. At the same moment it was restructuring the market around its larger ecosystem (macs/iphones/itunes) and absorbing the ipod’s functionality into that framework.

    Looked at from that perspective Apple could be seen to be pulling apart the PC market into a high end that it dominates and a low end that is reconfigured around pads that it dominates. An iPodish strategy would be to allow the low end/quantity players like Dell et al to withdraw and then move into any vacuum created with more limited devices that occupy the price point but achieve utility (and profitability) by integrating into the larger ecosystem—iTunes/OSx store apps, iCloud, iPads, Macs.

    Is the iPod’s successful path to failure the key to Apple’s overall strategy? Looks good from this point of view. Is my take on the iPod history mistaken? Horace? Anyone?

    • BuyOnSale

      Sounds good to me.

      But one thing, the iPod still makes very attractive profits. Most would absolutely die to have those profits. It is only in comparison to the obscene level of Apple’s overall profits that they seem trivial.

    • JohnDoey

      Why even separate out the iPods? iPhone is just “iPod phone.” iPad is just “iPod PC.” Today’s iPods are essentially just low-end iPhones and iPads. If Apple were to put a 3G chip into iPod touch and iPod nano and rebrand them iPhone mini and iPhone nano they could sell in giant numbers.

      You can also see phone and PC makers having as much luck cloning iPhone and iPad as they did cloning iPod — in other words, no luck at all, with the possible exception of Samsung who stole Apple designs and used their scale to make the one and only successful iPod/iPhone/iPad clone in Galaxy S3.

      It’s only Apple marketing that causes us to forget that iPods killed the phone industry. If the iPhone had been called “iPod 3G” we would more accurately talk about what just happened to the phone market. iPhone is only a phone because we redefined the word “phone.”

  • obarthelemy

    Maybe a little bit too much is being made of a temporary blip. For now, I’ve seen customers and companies *add* phones and tablets to Wintel PCs, not *replace* Wintel PCs with phones and tablets.

    Sure, that might come, later. Also, that does impact sales as Wintel PCs are being made to serve for longer. That’s also a reflection on the low level of hardware or software innovation in that space (I’d argue MS is even backsliding, Win8 is a worse OS than Win7, thanks to its clunky GUI); new features have been driving the market: USB, switching to the NT Kernel, digital video outputs… Nothing of that magnitude has happened in a while. All those 3+ year old PCs will need changing at some point though, if only due to old age, with luck because MS or Intel have come up with something new. As things stand now, they’ll be replaced by Wintel PCs.

    Longer term, I’m more concerned about low-end Wintel PCs being replaced by Android sticks. Looking around me, a good 50% of consumers would be served well enough (if not better: autoupdates and no viruses !) by those $50 gizmos, and probably an equal number of company employees.

    • Kizedek

      Sounds like semantics. You are right that the old PC is not being thrown out the window into a skip. In that sense, a new phone or tablet is not “replacing” a PC, but is being “added” to it.

      But in terms of jobs being done and time spent “computing”, then more and more tasks and time are definitely being spent on the new phones and tablets than ever before, at the expense of time spent and tasks being done on the old PC. Phone and tablet *computing* is replacing computing done on a PC.

      The PC is not being upgraded or “replaced” by another PC is it? PC sales are down precisely because customers think that a new one is not required to do new tasks or do old tasks better. They would rather buy a new phone or tablet (iPad) in order to do new and different tasks, or the same old tasks differently.

      Temporary? You may hope so. It’s more of a trend. The “blip” is that the last quarter showed the highest donwturn ever (14% or whatever). The people who determine it’s a blip (nice use of a crystal ball) are generally those who refuse to look at iPad sales when thinking about PCs, even though netbooks were considered and the iPad has blown them away. Some 15M iPads sell per quarter, but they aren’t counted. So, a case of Apple gaining a large share of an existing market’s profits, AND gaining value in another “related” (for those who believe the iPad / PostPC phenomenon is simply a blip) market it created for itself?

      What’s so funny is that you bend over backwards to try and act like Apple’s profits or products are nothing but blips and marketing and fads, as though they are only doing well, because, unfortunately, there isn’t much “innovation happening in the software and hardware space”, and of course Android products will soon be good enough for most consumers (while of course there is nothing whatsoever special about iOS apps)! We just can’t accord that sentiment to Apple and iPads right, that they will ever be good enough for some consumers, certainly not right now! No, there is no innovation from Apple, though you admit to lack of innovation on everyone else’s part; no, Apple is somehow unfairly taking advantage of a brief blip and lull in the fortunes of the PC (despite the advent of the eagerly awaited Windows 8 and Surface that has largely come to naught); the large share of PC profits taken by Apple is largely irrelevant because MS is here to stay and the health of the PC industry is fine.

      Really though, these articles that are finally just coming out all over the place about some possible cause for alarm, are just catching up. The “blip” is a trend, and Horace has been talking about it for a couple of years. The installed base of the iPad, for example; and the platform growth of iOS and Android as compared to Windows by time after launch. It’s really phenomenal, but as everyone knows, it has no real nearing on the PC 😉 because after all, no-one is “replacing” their PC.

  • JohnDoey

    I understand that this post is Intel-only to compare all PC’s that can run Windows, but if you add the iPad — the only successful tablet PC, the other tablets are all media players like iPod or phones like iPhone — then isn’t Apple taking a majority of PC profits? Isn’t Apple’s overall PC profit around 70%, just like in phones?

    If a user switches from Excel, Word, IE, and iTunes on a $400 Dell notebook to Numbers, Pages, Safari, and iTunes on a $400 iPad, they have not stopped doing PC computing. A full-size spreadsheet is the definitive PC app of the 70’s; a full-size word processor is the definitive PC app of the 80’s; a full-size Web browser is the definitive PC app of the 90’s; and an audio video player is the definitive PC app if the 2000’s. (The definitive PC app of the 2010’s is an app store.) So a $400 Windows PC and $400 iPad are the same market, and Apple is taking a majority of profits as usual by designing what the market wants instead of what engineers want to build.

    • orthorim

      You’re describing the post PC revolution perfectly.

      I think the underlying reason it has come this far is Microsoft. The company has successfully prevented innovation in PCs for the last 20 years. It was stagnation, with a monopolist taking all the money and hardware makers living on razor thin margins, selling as cheap as they can with no regard to design or quality. That era is now coming to an end.

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  • stevesup

    Time to drop the term PC altogether? Personal computers were never personal anyway, nor were they used for computing. In twenty-five years on these devices, I have never computed once; not sure what that is. More, today my little computer is also a phone; my big one is also a TV. Instead, how about DMPs, for digital media processors, as software and voice have become just more forms of digital media?

    • As much as that makes sense, the problem is that the PC term has become a de-facto standard. Even the word “computer” used to identify a human being. “Electronic Computer” was used at first to distinguish it from the original computer. As “electronic” was dropped, I hope we can drop “personal” and move on.

    • orthorim

      The term PC comes from an era where computers were large mainframe machines housed in rooms. Compared to that, they’re personal.

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  • narg

    I call shenanigans to this report. I watch the financial statements from some of these companies, and their numbers don’t match with what’s in this report. I appears to me that Horace took gross profits form Apple and compared them to net profits from the other companies. I wonder why he did this?…..

    • hmm

      “The only inference I made was with respect to Apple’s margins for the Mac. These are based on deriving a gross margin of 26% and adding an estimate of the SG&A and R&D “overhead” of 7.1% of sales, a figure which applies to the entire company. This yield an operating margin of 18.9%.”


      • Read Later

        I think these inferences yield a conservative operating margin. Looking at the Mac’s gross margin as 26%, I think the actual figure is possibly a little higher given Apple overall gross margin of around 40% recently, and the R&D overhead for the Mac is probably lower than 7.1% since Apple has not made major design changes in any of their Mac product lines in a few years and has invested heavily in automated equipment to manufacture their Macs. They have optimized virtually everything, from the case design to the number of fasteners used. While they will continue to tweak design to make everything thinner and lighter (except the Mac Pro), I don’t foresee any major changes that would require heavy R&D.

        Another thing they are clearly doing is designing for obsolescence by making the Macs less repairable (at least at any reasonable cost) and less upgradeable (custom RAM modules and SSDs), and taking away downloadable-only Mac OS X versions from their App Store, effectively shortening the useable lifespan of every Mac since Apple also limits (by necessity) the level of Mac OS any model can run. (By the way, you can still buy recent Mac OS versions by calling Apple at 1-800-MY-APPLE, but most people don’t know that and will just buy another computer). So if Apple can shorten the lifespan of a Mac from what used to be maybe 6-7 years to somewhere closer to 3-4 years, they will continue to prosper. That is unless customers rebel at both a premium price an a short useable lifespan. Time will tell.

      • The limits to lifespans for portable computers are usually wear and tear on the mechanical components. That and the likelihood of being damaged. As more than 80% of computers Apple sells are portables decisions on their service life is driving their engineering. More broadly speaking, the more mobile the device, the shorter the life span. Few mobile phones stay in use more than 2 years even if well taken care of.

      • orthorim

        Of course Apple’s the exception here. My previous Apple laptop was a 17″ MacBook Pro unibody – derided by the online tech community because of it’s non-serviceable battery – lasted me 4 years, then I gave it to my brother; it’s still working perfectly. Friends have meanwhile gone through 1 or 2 replacements for their cheap plasticky PCs already. The quality of the hardware is unsurpassed especially since PC makers have all but given up on making high quality business laptops.

        My original iPhone from 2007, I sold to a friend who is still using it today. It works perfectly.

        This is the sort of reputation you can’t buy. This is a Toyota like reputation. Apple will reap the rewards in years to come.

      • imaginarynumber

        Sorry, late to the party, but other than the hinge, keyboard and buttons, what other mechanical parts would you find in a laptop with no optical drive or spinning HHD? I recently installed W8 on my 2005 Vaio S5XP, the optical drive died years ago and the battery holds no charge but other than that it is fine.

        And two years for a mobile phone? I would be pretty annoyed if a solid state device didn’t last far more than two years. My 11 year old HTC touchscreen smartphone still works, granted it is painfully slow by today’s standards.

    • As stated, the comparisons are of operating margins (which are neither gross nor net).

  • SemiMike

    Tested a newer Google-Samsung Chromebook recently, and its very robust physically, has solid state memory for very long battery life, and easy-to-use OS, for those that mostly use a laptop for web surfing and sending email and do not like touch screens.

    That may be a niche, but unlike the earlier netbooks with SS drives, but this has large screen, nice keyboard, and survived serious drop tests much like Moto cell phones that popped apart and could be reassembled by snapping back together with no damage. Let me know next year if this is another trend that sticks

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  • wendoman

    PC makers are just a cheap tube for providing MS Windows and MS Office.
    You need to include MS profit in PC chart. Poor analytics.

    • orthorim

      I was wondering about that; I am estimating MS profits on each PC sale at $50 – way more than Apple is making on hardware, and way more than the hardware makers are making.
      However, MS doesn’t make hardware. At least not yet. They might have to once PC makers become unprofitable (because if you include the OEM fees, they would be profitable of course).
      Either that or MS gives the PC makers part of the OS fee as a kickback.

      They cant just slash prices because they’ve set up the PC market to compete fiercely; if they just cut Windows OEM prices, the PC makers will pass that on to consumers and once again become unprofitable. MS is in a pickle.

      • normm

        If Apple is making about a 20% profit margin with an average selling price well over $1000, then it’s profits per unit dwarf those of MS on PCs.

  • My wife just got told that her company (Bristol Myers Squibb) is giving
    her an iPad for use in the field. Multiply that times thousands of reps

    Her understanding is that she will be loosing her PC
    in the exchange. She is a pharma-rep. All they have EVER had since the 1990’s is PC’s.
    Adding the iPad is one thing, but if it does end up actually replacing
    the PC, and the experience tests positive long-term… then Apple
    hardware replacing PC hardware is a HUGE. There is no-way to spin
    that as a positive or even a neutral for PC or MSFT.

    • Dan

      Same thing is happening at Novartis.

    • orthorim

      There are many use cases where PCs are not a good fit for requirements.

      And where iPads are a much better fit. Add to that that iPads are cheap and it’s a major market disruption.

      Jobs said that iPads are like cars whereas PCs are like trucks. Once all cars were trucks. Now trucks are still around but cars are more useful for most people’s needs.

  • I suspect this to become even more the case, as unit sales decline and, especially, low and mid tier PCs and laptops get taken over by tablets. I could imagine Apple to become one of the Top 5 PC makers by unit share, if PCs become a mostly premium market.

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  • The real disruption in the enterprise to Windows is coming from iOS devices by Apple, like the iPad and iPhone. I work in a large enterprise setting (non-IT) and while Macs are finally tickling in here and there it is the iPad and iPhone that is disrupting Windows and Blackberry. As the iPad becomes more powerful, it will continue to replace the need for workers to have traditional windows computers. Its the ease, cheap cost of the hardware and the crazy number of useful cheap apps. Apple’s app store also justifies the cost saving as you purchase any app and can put it on multiple devices with no additional cost. I predict Apple or third-parties will make easy docking stations for the iPad for the corporate setting where the keyboard and extra monitor will be on the desk, and the worker will dock in the iPad and the word processing, spreadsheets and other apps will be easy to use while at the desktop and also on the road. Windows 8 and the Surface tablets are going for that model but the problem is the implementation of the tablet is poor and the legacy apps are not optimized for Windows 8 tablet.

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  • Space Gorilla

    It seems to me, looking at Apple’s profit share vs market share in different segments/markets, it’s obvious that a large percentage of customers aren’t worth having/focusing on. Was it Jobs who said you have to say ‘no’ much more than you say ‘yes’? It would seem Apple does this with customer segments, they essentially say ‘no’ to a lot of customers.

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  • The color of the links is very similar to the color the text. It is very hard to tell links apart from text. The link in the second sentence of this post is nearly invisible to my eyes.

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  • Brrriiiaaallliiiaaannnttt

    One interesting point is that the ‘PC Vendors – Asus, Lenovo, HP, Dell, Etc.’ cannot lower their prices to attack Apple any more. They are operating and selling as well as they can, while still making ‘any profit’. This is a great place for the ‘top brand’ to be in – Apple can dominate ‘profit’ and do ‘targeted promotions’ at will to generate more ‘market share’. Summary: Apple is in a far more dominate position going forward…Cheers…

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  • Mufis

    Microsoft windows division profit should be added in percent of PC operating profit pie chart, along with mac/dell/hp, that is missing. This is because you assume mac os software comes free. Similarly android profit at google can be added in iphone samsung profit chart, which is almost zero.

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  • Scott Wilson

    Why are there only five manufactures in this flawed report? There are literally thousands of makers that could make up an “other” category that would be about 65 percent more that you are missing. Think the e-machines that sell like hotcakes at wal-mart because they are 200 bucks a piece.

    This entire report is a fantasy because you’ve omitted the largest PC retailer. “Other”.

    • I have not omitted Other. See the sixth paragraph and pie chart.

      • Scott Wilson

        You have conveniently and grotesquely oversimplified “other”.

      • Guest

        You are an idiot & a troll

      • Guest

        And yes, I know that this comment is 8 months old.

      • That’s ok. You are a child.

      • And you are an ignorant piece of chit that can’t make a proper arguement lol

  • Scott Wilson

    Furthermore, we KNOW Apple only has 6 percent of the desktop/laptop market. So unless they are literally selling the EXACT SAME Parts made by the EXACT same ODM’s (Compal, Pegatron, Quanta) for 20 times what everyone else is selling them for, there is NO WAY your imaginary numbers make sense at all. You are reaching way too hard with this one. The hilarious thing is people actually believe you.

    • The methodology is explained in the third paragraph. You can duplicate the calculations. The average selling price for Macs is obtained from dividing the revenue figure by the units shipped, both supplied by the company. That price is $1,378.

      • Scott Wilson

        But that still does not account for the vast difference in proposed “sales share” despite the ridiculously tiny Apple market share. What you are suggesting simply isn’t possible, unless the markup on Apple products is an order of magnitude higher than anybody elses. And we’d KNOW if that was the case. Right now their markup is only about 10-20 percent over an identically spec’d laptop from Pegatron(Asus). Pegatron makes the Macbook Air and the nearly identical Asus Zenbook line for example. There’s even less of a price differential there, despite Asus selling a lot more laptops.

        And we still go back to you having NO WAY to produce your “Other” figure. PC’s aren’t like smartphones. With smartphones we get exact numbers multiple ways. We know what the makers ship, and sell in some cases, and we can determine those figures based on activations, and what the carriers report.

        But with PC’s? Can you tell how many PC’s sold on eBay? Or 25,000 websites on the Net? Can you tell how many of those sales were Chromebooks? How about Linux laptops? Are you counting the entire server market? Are you counting Oracle’s prepackaged solutions? Are you counting DoD contract windows boxes? How are you handling virtual machines? Are you counting the insanely popular Cisco backplane devices?

        Essentially the point I’m proving here is that there is absolutely no way you’ve actually generated meaningful numbers here. You’ve omitted a massive chunk of the market.

    • oliveremberton

      You don’t have to charge 20x as much to earn 20x the profit.

      If I sell a laptop that costs me $200 for $201, I make $1 profit.
      If I sell a laptop that costs me $200 for $220, I make $20 profit.

      If Horace’s figures are correct then Apple is making a profit around $250 / unit, whilst the leading PC manufacturers are squabbling over $10 – $40 / unit. Even with a small slice of the total volume, Apple’s profit dominance makes perfect sense.

      • Scott Wilson

        It is impossible for Horace’s figures to be correct because he’s not including a sizable chunk of the market. I could fabricate a report like this by calculating the “profit share” of ferrari by only including ferrari, porsche, lamborghini, BMW, and Mercedes. I’d be ignoring 90 percent of the market. And inside the little box I made I could prove Ferrari makes 40 percent of the overall profit. I’d be wrong, just like Horace is. I’d also include an arbitrary “other” column based on absolutely nothing just like Horace did. Refute what I’m saying.

      • The data has been updated with the Q1 figures as provided by Gartner and Apple (and estimates on operating profitability from Deutsche) and are available here:

        If you think Gartner ignores 90% the market then let me know which source of PC shipment data is correct.

      • Scott Wilson

        How could Gartner possibly track all the PC shipments from every mom and pop shop in the world? Hmmmm? Look, I get what you did. You limited scope to give Apple more percentage than they actually have. It’s very easy to generate a report this way. And you can throw out “Gartner” like that has some merit because it sounds “official”. But their figures do not track all PC sales. They couldn’t possibly.

        So again, show me the insane PC sales walmart does in the heartland. Show me the sales from gaming PC builders. Show me the sales of direct sales to corporates from private builders. Just using the smartphone market as an example, “Other” made up 79 million phones last quarter. More than double what Apple sold. And we CAN track those. How on earth is Gartner going to have reliable figures on how many PC’s actually sold?

        In order to get a real number on actual PC sales you’d need to have industry moles in every ODM and fab and assembly shop in shenzen for one. You’d need hard OS activation numbers from Microsoft. We know they’ve sold 100 million copies of Windows 8 for example, but not whether they were installed.

        Look, I get that you like Apple. I can tell from your myriad articles all finding some way to support them. One would be hard pressed to find anything negative about Apple you’ve ever said. But people actually believe you for some reason. So you can defend a flawed method all you want, but in the end it is indeed a flawed method.

        There is simply absolutely no way possible Apple is taking home 45 percent of overall PC profit with such tiny market share. Not even double digit market share. Not without some very creative math. And your math is very creative. 12 percent I’d buy. Heck, 20 percent is palpable. But 45 percent is ludicrous. It certainly makes for a great headline though.

      • Do you have an alternative set of data for Other vendors? IDC figures do not vary greatly from Gartner’s. I use Gartner because I have data from them back to the 90s. The math is set forth in the linked data set. I don’t know what can be considered creative about it.

      • Scott Wilson

        No, I don’t have an alternate set of data because NOBODY does. That’s the point I’m trying to make. What you are attempting to fabricate isn’t possible. Because you haven’t taken into account the PC Gaming Market, and the massive and relevant high-end PC sales. Nobody tracks it. Your report isn’t possible. You’ve left out one of the largest, and one of the most profitable portions of the PC market. Your math is based on a much smaller sample of the market, and that’s why Apple’s profits appear so comically wrong and exaggerated. Because they are.

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