EMail from a DELLhead friend
I heard the Fool Radio show last week, and Tom Gardner says that if he had to
invest in a box maker it would be Gateway. But if we opened up the choices to
the entire market he would invest elsewhere. That was not too comforting to
guy like myself who has invested in Dell and GTW. Tom cited falling Sales and
Margins as a concern. But from where I'm sitting Sales are increasing at GTW
and DELL. Ok margins have slipped a bit, but hey there is a war going on, a
price war, and to the victor goes the spoils....Market share.
Look at Revenue for DELL at 18 billion. CPQ has 30 billion in revenue and I
estimate 10 billion of that is in boxes. IBM has 84 billion, Another 10
billion in boxes, and HWP has 48 billion, with probably around 7 billion
worth of boxes.
Since DELL is a direct marketer it can keep prices down and still win the war
on margins and profits. Just by stealing market share from these channel
sales dinosaurs they can increase their sales by 25 or maybe even 50% just
off of market share, not to mention growing demand. So a little price
decrease now helps DELL down the road by earning market share and the chance
to gain a loyal customer later.
Its war for the customers, and every customer that DELL wins today is another
potential win tomorrow. While Dell is scoring a good profit per dollar of
sales, even with reduced prices, The channel sales margins are already
squeezed and eventually they can't compete with out loosing money. Thats when
the direct sales people will begin to take a dominating position in the
market. With that dominating position they can begin to wreap even greater
rewards from the BTO model, compounding the power of quantity with Just in
time buying. At some point there will be no channel sales, or very little. I
have not bought a channel sold computer for 15 years or more. The last three
were direct, and the last 10 that my family bought were direct!
Remember that part of the falling prices are absorbed by the OEM's that
supply Dell. They are simply passing on the savings to the consumer. So as
long as they can increase sales faster or close to the same rates that they
are lowering margins, the Direct sellers of PC's will continue to prosper.
They will prosper by capturing new entrants into the PC market, and by
capturing market share from the Channel sales folks.
Conclusion: Party is just getting started with DELL and GTW.
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