A negative point of view on the Webster
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DELL's New WebPC Scott Greenberg
Nov 30 1999
Don?t let the hype fool you. Dell may be stepping into the Internet appliance market, with the introduction of a light-weight, low-cost (for Dell) Internet PC but it won?t help its slipping margins. Dell's WebPC will come in product bundles ranging in price from $999 to $2,399. The new PC is similar to products from Compaq Computer and HP. As with Compaq's iPaq and HP's ePC, the WebPC does away with the old technology such as ISA ports and built-in floppy drives. Instead, these new machines will depend on "plug and play" USB ports and optical drives, such as CD-ROMS. Unlike Compaq and HP, however, Dell will target its new PC at consumers rather than corporate users.
The lower price machine will continue to erode Dell?s ASP (average selling price), assuming a launch of 100,000 units with an ASP of $1500 this would reduce overall ASPs by a meager $13. Nevertheless, ASPs could decline over 10% this year as people seek out the convenience of these lower-cost Internet models instead of Dell?s more expensive traditional desktops. This will further pressure Dell?s already decreasing gross margins, which declined to 20.2% from 22% last quarter.
The bigger story though is between the lines as Dell breaks precedent with its winning ways. SCI systems, a large contract manufacturer, will assemble the machines and they will come in only three fixed configurations. This drastic change from their build-to-order model with infinite variety will be a less-profitable shift for Dell. Rising chip prices, display shortages and acts of God (the Taiwan quake) may make them wish they had some inventory. And, if these ?convenient? machines do catch on, Dell may find themselves stripping down instead of building up more desktops.
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