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Technology Stocks : Dell Technologies Inc.

DELL 125.14

+2.2%

2:07 PM EST

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To: kemble s. matter who wrote (135514)	7/5/1999 12:58:00 PM
From: Chuzzlewit	Read Replies (3) of 176387

Good morning Kemble, Gerstner keeps telling us that they [IBM] need the PC's for the sake of the other businesses that are quite profitable. Don't dismiss this statement out of hand. Two issues come to mind: First, IBM may be using PCs as a way to sell other products. They may simply be "loss leaders". For years, MacDonald's lost money on hamburgers but generated huge profits on fries and soft drinks. Second, the issue of transfer pricing is important, because IBM manufactures components used in their PCs. If the component manufacturing arm is making good money they need the PC business to sell those components. If the transfer pricing is artificially high you could end up with the component manufacturing divisions making inflated earnings while the PC business is artificially losing money. Nevertheless, Dell remains the low cost assembler of PCs, and its unsurpassed business model continues to threaten the competition. Therefore, it is more likely that IBM might want to subcontract the assembly of its machines to Dell, thereby using the profitable IBM parts and the efficient Dell assembly model. TTFN, CTC

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