Analyst makes brash call for PC maker shake-up

Calling his report a PC industry "manifesto," Neff insisted changes are needed to fend off years of disappointing financial results. He proposed a radical set of buyouts and mergers among the PC world's biggest players.

"The PC industry is at a critical juncture," he wrote in the report. "Managements and investors need to recognise that the problem is not the end of the PC but slower growth and overcapacity... It is time for bold moves. It is time to do it before it is done to you."

First up, Neff suggested that Dell Computer should buy both IBM's PC business and all of Gateway.

"We do not see a compelling rationale for IBM to be in the PC business," he wrote. "It (does) not seem to fit within its focus on services, software and technology."

By buying IBM's business, Dell could gain a fair share of markets in Europe and Asia, pushing it past Compaq Computer in the global rankings. With Gateway under its arm, Dell could also strengthen its position in the consumer markets, Neff said.

Equally brash, Neff suggested that Hewlett-Packard should go on the offensive and snatch up Compaq.

"Hewlett has the luxury of having a printer business that is highly profitable," Neff wrote in his report. "It is time for Hewlett to make offensive moves that will force its competitors to respond."

By taking on Compaq, HP would increase its ability to offer the whole IT package with printers, computers, storage, servers and consulting services, the analyst noted. The move additionally could block against moves by Dell and strengthen HP's consumer businesses.

Neff added that the move makes sense given his dismal outlook on Compaq's road ahead. Compaq should "design the best exit strategy" given what he called its lack of direction, comparatively lagging growth rate and "inferior" business economics compared with the direct PC vendors.

Perhaps most interesting, Neff tried to talk Apple into switching its chip architecture from PowerPC to Intel processors.

"Apple risks ending up like Silicon Graphics -- great technology but shrinking markets and increasing competition," he wrote. "This may seem like heresy, but Apple's best option is to play to its strength in industrial design and design the best computers for the Wintel market. Abandon the PowerPC architecture and port the Mac OS X over to the Intel architecture."

Neff goes on to claim that it shouldn't be difficult to switch Apple's new OS over due to its close ties with Unix. Although this might not be as easy as Neff suggests, Apple is in need of a boost after posting its first quarterly loss in three years on Wednesday. Apple still has plenty of cash and could use the money to support a technology change, Neff said.

The analyst did hedge his bets, saying the PC woes might not be so grim a few months from now. Industry pundits often point to the highly cyclical nature of the PC industry, and some have said it could regain strength in the not-too-distant future.

"If demand trends, for any reason, come back stronger than expected, it is possible that the business prospects for PC vendors may not be as bleak as they look now -- but that does not change the fundamental issue of industry overcapacity," Neff said in his report.

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Ashlee Vance

PC World
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