The days of hardware manufacturers printing money by stuffing someone else's software into a box full of commodity parts are coming to an end.
This isn't an original idea on my part, but it's an important one for investors to grasp.
One of the many reasons Apple
(AAPL) has decimated its competition over the past decade is that it controls both the hardware and software in its products. It doesn't have to make hardware to accommodate another company's hardware, and vice versa. Of course, it doesn't hurt that Apple is best-in-class in both, and that appreciation for good design is embedded in its DNA. (See: The Key to Apple's Financial Success
(GOOG) strategy for Android tablets, on the other hand, was to basically stand on the street corner and invite everyone who walked by to make a tablet.
And look at what happened.
(AMZN) Kindle Fire and Barnes & Noble
(BKS) Nook tablet became the No. 2 and No. 4 best-selling Android tablets on the market.
However, they run customized versions of Android that are specifically engineered to market their digital-content ecosystems, and so they deliver little to no value to the Android brand.
In my mind, this is why Google decided to take total control of its tablet business by making its own hardware, the first version of which is the Nexus 7. (See: For Google's Nexus 7, the iPad is the Least Important Target
(MSFT) also had a revelation about the importance of controlling both hardware and software, as evidenced by the announcement of the Surface tablet. (See: With Surface, Microsoft Stands Little Chance of Competing With Apple in the iPad Market
My theory (again, not an original one) is that after watching its PC hardware partners like Dell
(DELL) and Hewlett-Packard
(HPQ) get outshone again and again by Apple's incredible designs, Microsoft decided that it had to take end-to-end control.
So what's happening?
Well, I think we are slowly headed toward an Apple vs. Google vs. Microsoft fight in the post-PC computing era, simply because Google and Microsoft are aggressively marginalizing hardware partners that really don't do all that much for them.
Hewlett-Packard may have predicted this endgame and bought Palm as defense against it, though that deal was a total flop. (See: Hewlett-Packard's Risk Is Much Needed
Now what does any of this have to do will Dell's $2.4 billion acquisition of Quest Software
(QSFT), which was announced this morning after months of speculation?
Simple -- by buying Quest, Dell is prepping itself for the post-PC era, just as it did when it bought Perot Systems and SonicWall and Wyse and KACE Networks.
Hewlett-Packard is in the same boat, having bought up Autonomy, Arcsight, 3PAR, and 3com in recent years.
The upside for investors is that companies like Dell and Hewlett-Packard are going to continue buying up everything that isn't nailed down to the ground to offset the long-term decline of the PC market. Additionally, Oracle
(ORCL) and IBM
(IBM) won't ever stop shopping to keep their own businesses growing.
So do you want to make big money in tech?
Then ignore the old-school names, and sniff around the healthy and growing small- and mid-cap guys, because there will be no end to the M&A activity.
Position in AAPL
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