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Politics : Ask Michael Burke

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To: Freedom Fighter who wrote (71038)	11/27/1999 5:46:00 PM
From: Chuzzlewit	Read Replies (1) of 132070

Wayne, I think one of the great myths in evaluating a company is to dismiss its niche as a commodity. Dell has a tremendous advantage over other competitors, all of whom are in trouble in the PC market (CPQ, IBM, HWP) because they cannot assemble a machine as cheaply as Dell, nor have they figured out how to market directly. That means that eventually something has to give. Either prices will increase or one or more players will drop out. But Dell is not without its Achilles Heel. While maintaining very low inventory levels reduces inventory holding costs (which is one of the main drivers for Dell's efficiency), but it simultaneously leaves the company vulnerable to shortages of components and sudden increases in the cost of components (as we saw with DRAM pricing in October). In my opinion, the real challenge that Dell faces is to develop a portfolio of goods it can assemble and distribute to replace the potentially out-moded PC. And that's the reason I used a 15% risk premium in my valuation. If the future were a little clearer I would probably argue for a 10 - 12% risk premium. TTFN, CTC

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