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Technology Stocks : Dell Technologies Inc.
DELL 133.73+2.5%3:59 PM EST
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To: rudedog who wrote (148458)12/3/1999 5:29:00 PM
From: Chuzzlewit  Read Replies (3) of 176387
 
Rudy and Mike,

Focusing on margins is really pointless for a couple of reasons.

First, I assume (hope?) that the consumer business will be incremental. That is, it will not take sales away from existing lines. So analysis based on margins and ASPs and the like are fallacious.

Second, the way to view the move is to look at gross margin and cash return on cash investment. That means that we need to focus on the interplay between inventory turns and profit margin. Each, taken by itself is meaningless. Selling one unit for $100 with a 50% profit margin has the same result as selling 100 units with a 5% profit margin. I don't know what the cash investment is, nor do I know the expected returns, so I can't deal with that issue explicitly. But in general, if the cash return over time (gross receipts less cash expenses) implies a return in excess of the the company's hurdle rate the project should be undertaken regardless of profit margins.

TTFN,
CTC
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