John -
I think that the pricing environment in 4Q99 was a lot less brutal than the first half of the year, and that margins would probably have been up were it not for DRAM pressure. everyone felt that to some extent. DELL's 4Q should be better in that regard, since they took most of that hit in 3Q99.
But the game in 2000 will be different, I think. CPQ and HP have both targeted the commercial segment with low cost "legacy free" machines. I would imagine DELL will follow suit, they certainly have the technical capability to bring such a product to market quickly. These products are simply less cost and therefore at a lower price point... a lot lower.
For CPQ, who was losing money in commercial PCs (their ONLY money losing business), going to a model which reduces revenue doesn't hurt much - commercial PCs are only 25% of their revenue anyway. If they can do that while also restoring profitability, through a lower cost product, that works. I doubt if CPQ would be concerned if commercial PC revenue went to 20% or even 15% of overall revenue. They don't even talk about PCs any more - they talk about "clients" which might be PCs, might be web companions, might be almost anything...
As I said above, if CPQ and HP are successful in pushing a significant volume of $500 commercial PCs, then DELL will certainly have to go there with some of their products as well. But unlike CPQ and HP, 80% of DELL's revenue comes from commercial desktops... the same 20% revenue hit that actually looks good at CPQ, would create some real problems for DELL. That means that DELL would have to increase their unit sales by an additional 20% or so to hit the same revenue numbers as at the old ASP. And with projected industry growth rates projected to be less than 20%, but DELL required to grow at 40% to meet expectations, that's a tough challenge.
I think DELL is probably now at or close to the best pricing that INTEL offers - they may now be intel's largest customer. But that is also a two-edged sword - the chip prices won't get any lower from here on out... Still, it's probably a benefit in the current environment.
Have not done any season tickets yet, except the houston symphony... I can usually rely on buddies whose wives (like mine) think that one or two games a year in any given sport is about right, and therefore have an extra seat, to get me in. |
