Apple and Dell financial results: some mistake surely?

What's wrong with this sentence - 'Dell Computer last week issued a profit warning and saw its share price slide sharply, while Apple Computer comfortably beat Wall Street expectations and sent its stock price soaring'? They're the wrong way round, surely...

No. Amazingly, Dell, the direct-selling demon of the PC industry, was last week bemoaning a $1 billion (£630 million) shortfall in 'lost' PC sales, while the board of Apple is so happy with its Lazarus-like resurrection that it has rewarded now-permanent chief executive Steve Jobs with his own Lear jet.

Dell has warned that it expects to report fourth-quarter profits of $430 million (£260 million), down 20 per cent on previous estimates, on revenue up 30 per cent at $6.7 billion (£4 billion). To most companies, these would be entirely respectable figures. But for a firm used to 50 per cent, that's galling.

A total of $800 million (£480 million) of sales eluded Dell: $300 million (£180 million) if it had had the new Intel chips, and $500 million (£300 million) lost through Year 2000 lockdown.

"We are clearly not happy about this," was the understated response from Dell's chief financial officer, Tom Meredith.

Taking the new century by storm
The contrast with Apple Computer could hardly be more pronounced - or more unexpected. The company written off as a spent force as little as three years ago stormed into the new century with its highest quarterly revenue growth since 1989. Apple returned a first quarter operating profit of $178 million (£108 million) on revenue of $2.34 billion (£1.4 billion), an increase of 37 per cent from the same period a year ago.

All this goes to show that Dell is as vulnerable to market forces as the rest of us. It is quick to insist that the bad results were a mere aberration, claiming it had been badly hurt by a shortage of Intel's high-end Coppermine processors for its desktop machines. As a result, it couldn't deliver products it had heavily promoted in the period leading up to Christmas. The firm, which boasts of being able to ship a made-to-order PC in seven days, saw its delivery time slip to anything between 25 and 30 days as a result.

It's a pretty embarrassing situation for a company which built its success on having a vice-like grip on its supply chain. Despite openly criticising Intel, Dell still has no plans to shift its allegiance to an alternative chip supplier, such as AMD.

"On the processor side, we are completely Intel at this point," insists chief executive Michael Dell. "I don't think we should take rash action based on a difficult transition."

The demands of delivery
Ironically, the 'couldn't ship product to meet demand' mantra used to be a popular excuse over at Apple in the bad old days. Not that Apple is entirely immune to such problems yet. It too suffered from some chip production issues, and ended the quarter with what it called an 'extremely large' backlog of 400,000 units not shipped, about $700 million (£425 million) worth.

Apple did ship its highest ever level of units during the quarter, however: 1.4 million systems in total, including more than 700,000 iMac consumer desktops and 235,000 iBook consumer portables. This translates to unit growth of 46 per cent year on year, comfortably more than IDC's estimate of worldwide unit growth of 17 per cent for the final quarter of 1999.

What larger trends underlie these contrasting performances? There is a growing unease that the PC sector as a whole is slowing down, and Dell is not the only supplier to show poorer than expected numbers.

Recent Gateway figures were a disappointment, while Compaq is concerned that the delayed launch of Windows 2000 will hold up corporate purchasing decisions and force a slow start to the year. It is now saying it won't make money out of PCs until September, even after a rapid shift to Dell-style direct sales.

Fall and rise of growth rates
According to market research firm Dataquest, the growth rate of global PC shipments may drop from 22 per cent in 1999 to 17 per cent in 2000. That reduction will happen alongside an annual fall in PC prices of 15 per cent - which can only increase pressure on companies to boost their growth rates just to maintain their positions.

"Much will depend on the industry's success in convincing its customers to replace PCs more frequently," says Charles Smulders, principal analyst for Dataquest's personal computers worldwide program.

"Key factors will be the industry's ability to bring smaller, less complex, cheaper products to the business market, and industrially designed products to the home."

Reassessing the role of the PC
Put like that, one might think that Apple, of all companies, would be best placed to exploit any consumer thirst for trendy boxes. But that demand may well be satisfied by rival media such as interactive TV or Internet appliances. And in the business world, will firms really want to throw out inventory simply to accommodate Windows 2000?

The whole role and function of the PC is being reassessed. As Bill Gates told the World Economic Forum meeting in Davos this week: "To tackle these new horizons, we're going to have to throw out some of the old." That may include more than you might think.