Dell And The Death Of The Consumer Hard Drive

| About: Dell Inc. (DELL)

Dell (NASDAQ:DELL) insists its new Ultrabooks are selling three times faster than expected, although they don't give out any figures.

Some analysts say they're now more optimistic about the PC's future.

But should they be?

Ultrabooks like the Dell XPS 13 get so light, so thin, and run all day on a charge because they lack hard drives. In some ways, the main difference between an Ultrabook and an iPad is that the former has a keyboard.

But a PC is still a serious work machine. You still want to store a lot of stuff on it. An iPad, by contrast, is a client. And you can understand this well by comparing the specifications and prices of the Dell XPS 13 and the new iPad.

The iPad has a smaller screen, and tops out at $699 for a model with a 64 Gbyte "solid-state" (all chip) drive. Using chips for storing files rather than a hard drive means longer battery life, faster file transfers, but more cost.

The XPS line starts at 128 Gbytes of chip storage, twice what the iPad offers, and a price to match - $999. So for a keyboard, Windows, a bigger screen and twice the memory, you're paying about $300. The Dell Inspiron, by contrast, has four times the storage - 500 Gbytes - on a spinning hard drive, and is priced at $399 through Dell.

This is the essence of today's PC economics. You pay up for the reliability and long battery of chip-based memory. The iPad has caused most buyers to cross that bridge, and when PC makers like Dell follow buyers pay big-time for the privilege.

The losers here are obvious. The hard drive makers have lost the consumer market. At one time there were 200 such companies. Now the U.S. sports just two mainstream players - Seagate (NASDAQ:STX) and Western Digital (NYSE:WDC). (The other two - Intevac (NASDAQ:IVAC) and Xyratex (NASDAQ:XRTX) - specialize in the high end of the market and yet are still trading perilously close to book value.)

Both STX and WDC have also been moving up-stream, toward enterprise and cloud storage, as fast as they have been able, since the Thai floods abated and supplies came back on-stream.

But I wouldn't recommend either. Even Western Digital management expects the market to soften.

The reason is the consumer market is gone.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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