DELL's R&D is 1.5% of sales. You correctly note this still represents $300M this year, but it doesn't really constitute a cost someone else can eliminate for competitive advantage. Why? Because it's not really R&D. It's mostly people who spec out and qualify components and deal with the testing required by Microsoft for logo certification, etc. The bulls who think DELL is a hi-tech company are deluded.
Your point about large companies paying sales tax on mail order is well taken, but they're only part of the market. And it's true DELL's inventory cost advantage (which, by the way, is more finished goods than component) will disappear when prices stabilize. But that's a decade away, giving DELL time to manuever.
As for MSFT, they're on DELL's side for a while. DELL most closely follows the commodity hardware vendor profile that MSFT desires. MSFT will use DELL to weaken Unix workstation and server vendors like SUNW, HP, and IBM. As for MSFT doing h/w, puhleeeeze. I've been hearing that for 15 years. Low margin capital intensive businesses are anathema to MSFT. They do h/w when only strategically necessary.
I'm not saying the above justifies DELL's $80B valuation. I'm just saying the factors are in place for DELL to continue gaining market share and growing revenues. Barring a Lucretius Tarsus style global depression, I can see DELL doing $50M a few years out. Their stock price is at least as likely to go up as to go down during this run. |
