Interesting discussion over the last few days. I find it strange that there is so much complaining about the state of the stock right now. Other than the fall from the spike at the beginning of the year, it is doing ok when compared to last year. Dell is in the news almost every day, so I don't understand why there are people saying that Michael Dell should do more. Heck, go to the 3dfx board here (tdfx) if you want to see a stock that hasn't been doing well.
As for the discussion on price, competition does keep driving the prices lower, coupled with improvements in technology and increased manufacturing expertise. AMD was the competition that spurred price cuts from Intel. Intel was caught by surprise and AMD helped to usher in the wave of low-priced home computers. Celeron resulted from this and now cheap home computers actually have a fair amount of power. Intel does care if AMD is profitable as that allows them to increase R&D and capital investment so they would prefer AMD to be as weak as possible.
Dell will not be hit too hard, too fast by the price increases in memory and other components. They?re a very large vendor who is very demanding of their vendors. They pay contract prices for RAM, not the higher spot prices. All the articles I?ve seen on the memory shortage mention that the large OEM?s will be getting supplies before the white box companies do and well before the corner computer stores who will end up paying spot prices. The Microns of the world know how important it is to service Dell. That?s not saying that prices will not increase, but they?ll feel it less than their smaller competition.
I don?t think that Dell will be able to raise prices all that much, but they can cut down what they put in their boxes. I remember a RAM spike a few years ago and vendors dropped to 32 meg of RAM (from 64) but kept their prices steady. There is a certain amount of power to the different price points. Dell has been adroit at changing hard drive sizes, memory configuration, video card, and other features to maintain a price point and the margin they want from that price point.
Even the shortage of motherboards will help. Dell will get served before many of the other customers. The very small OEM?s who serve local markets (in my opinion who also often provide more bang for the buck) will be hit very hard. The retail oriented OEM?s will be insulated for a bit from the shock as they have inventory out in the channel, but they also were about to ramp up for the Christmas season and may end up with less parts than they need or much more expensive parts than they had planned for.
Note that many of Dell?s advantages in the current situation are from the SIZE it has grown to, not the direct model. Of course, the direct model in times of dropping part prices is what allowed it to grow so big. It even has protected its vendors in many ways. It usually is more efficient to make a long run of the same part and you want to make sure that Dell is happy. So you build up inventory when you win the order from Dell (the cost of holding the inventory can be much less than the risk of losing Dell if you don?t ship on time plus you get the savings from larger batches).
Michael |
