Apple and the Procrastinators’ Dilemma

The major PC vendors; HP, Dell, Lenovo, Acer and the rest, procrastinated for far too long. They sat and watched Apple take control of the US consumer market for PCs without even a token attempt to compete. I guess they thought Apple’s sales growth would tail off, hitting some kind of glass ceiling where it would languish indefinitely and irrelevantly, as far as the PC market was concerned. Well it isn’t happening.

Apple’s gradual growth didn’t concern the PC vendors when the numbers were low. It didn’t matter much if Apple took an extra 0.2% of the market when the market itself was growing at 10%. It didn’t hurt anyone much. Having sown the breeze, the PC vendors are now reaping the whirlwind.

Apple announced its move to Intel in 2005, and consequently most commentators expected 2006 to be a difficult year for Apple. Well it certainly had a bad 2nd quarter when Mac sales grew at only 4%, but that was a blip. Overall Mac sales grew by 16.6% in 2006. In 2007 Apple started to motor with Mac sales growth of 33% while the US PC market (Apple’s primary market) was growing at a mere 5.3%.

In the first quarter of this year Apple shipped 2.3 million Macs, a 51% increase over the same period a year ago, while its revenue from its computers grew by 54%. And in that quarter Apple accounted for 66% of US store bought PC Sales that cost over $1000 (according to the NPD Group).

Here’s the full set of figures:

The Consequences

So what’s happening?

There’s no reason to believe that the 1st quarter of 2008 is anomalous in any way. Just to confirm this, NPD Group was reporting that Apple’s sales growth was 50% in April too. And if Apple continues to grow at this rate then it will sell something in the region of an extra 4 million Macs this year - and that is going to hurt all the PC vendors - and Microsoft too. In those circumstances it will be difficult for any other vendor to exhibit any growth at all. Within a Year Apple will overtake Toshiba in terms of units sold and a year later it will march past Lenovo.

The reality is that when Macs compete head to head with PCs they win. There is no Microsoft lock-in any more. Vista has failed to compete and the Mac is what the consumer wants. For that reason, the Mac is now inveigling its way into business computing. If Apple chooses to enter the lower cost computer market then the PC vendors will have nowhere to go. But Apple may not do that.

It’s the OS, Stupid!

The PC vendors problem is that they cannot differentiate, and so they cannot compete directly with Apple. Apple may impress with brilliant physical machine designs, but its big differentiation is OS X. The only PC vendor who competes at that level is ASUS with its Eee PC and I suspect that other PC vendors will follow suit. With Linux they can, at least, add their own customization and actively do something to make a difference.

Otherwise the PC vendors will just have to wait for Windows 7, but you just know that Apple will leapfrog Windows 7 well before it arrives. Windows 7 will not fix the problem for them.