I'm not sure yet what Niles really said... but DELL's weak entry into the consumer market and the fact that they have done almost no advertising for their consumer push (and none at all for the WebPC aside from the announcement) has some DELL investors concerned. With the Christmas buying season only a few weeks away from closing, CPQ seems to have been the big winner of the share left on the table by IBM and Packard-Bell, and there seems to have been little shift away from the bricks and mortar consumer buying patterns.
I have a growing concern that DELL is just not executing, which seems to be shared by many long-time DELL bulls. The combination of MSD's statements about "DELL will have 50% of the market in a few years" (which reminds me a lot of EP's "$50B company by 2000" statements) combined with the weak and unfocused product strategy and an almost total absence of real product announcements seems to indicate that DELL management is just not innovating their product line at "internet speed".
DELL has made statements that they intend to concentrate on their core business - i.e. PCs and volume servers. This is not viewed as a stellar growth strategy. They have backed off significantly on their enterprise plans, stopped efforts to build in-house professional services, and have done only one fairly mysterious play to shore up their storage plans. They now appear to be planning on partnering with EMC for enterprise storage, hardly the low-cost volume partner in that space. This approach also gives much of the high-margin storage business to the partner rather than to DELL.
Several posters on the DELL thread have discussed DELL plans in handheld and wireless but there is almost no substance to DELL's plans in that area, aside from a few "me-too" reseller offerings like the RIM pager, and vague discussions about partnering with Nokia and others which have less meat to them than similar rumors from HP and CPQ. Both HP and CPQ have the technology base and distribution to move the "e-tronics" lines, which currently are selling more than 80% in the bricks and mortar retail channel where now only CPQ and HP are big players. Most observers think that of the "big 4", these two companies will be in the best position to jump on the transition to next generation products.
Also, HP and CPQ have positioned themselves well to survive a shift away from PC revenues as this transition occurs and in fact have made it a business priority. Capellas has said that he expects commercial PC revenues to be 15% of overall revenues in a couple of years, and Carly is clearly pushing HP in the same direction.
I think analysts are waking up to the fact that these changes take years to accomplish, require basic business model shifts, and that HP and CPQ are well along the path whereas DELL has re-trenched as the "Pure PC" play. What happens to DELL, which has 80 percent of its business in PCs, when that segment undergoes a radical shift downward in ASP? The iPaq and HP's e-PC signal the next step in the commercial space - products at less than half of the current commercial ASP. HP and CPQ will do just fine if that trend takes off since they make a lot more on the related enterprise business than they lose in PCs. Not so for DELL which seems to be more concerned about protecting its current commercial ASPs (as witnessed in the price point for WebPC) than in getting on board the low-cost commercial PC train.
If even 20% of the commercial PC purchases shift to low-cost legacy-free machines next year, the financial impact to CPQ and HP will probably be a net positive, but it will put real pressure on DELL's revenue and earnings growth.
Combined with a series of events which have highlighted the weak side if DELL's JIT model - their special vulnerability to DRAM price hikes and component shortages because of Taiwan - is their dependence on Intel's ability to execute. DELL has not been able to sell 8-ways at all this year because of a flawed Intel chipset and board design and CPQ now has 90% of the Intel 8-way market; DELL placed a big bet on RAMBUS, products were in their catalog, but they were unable to ship because of the Intel 820 problems, etc. Finally, DELL seems to be drifting closer to Intel's LINUX volume push and away from MSFT, which may be a requirement to stay close to Intel but is not viewed as the best way for DELL to maintain mindshare in the volume PC and server space.
Perhaps this kind of thinking is behind Niles' opinions. |
