I'll take this one sound bite at a time.
You wrote: "Not a cause and effect. In recessions, everyone gets their margins squeeze. Yes. Squeeze is the effect. Cause is...
"Does that mean it's solely due to the used market?" Duuh... no. But you're the one who chose the word "solely". I don't know why you bother with such black and white artifice. " No." Whew... we agree.
"It's due to a number of factors, not the least of which is changing product mixes. " Agreed again. But amongst this number of factors, let's also not neglect higher price sensitivity of the marketplace. Or the availability of substitutes provided by competitors to the company. Or cutthroat competition. And so on. We're not trying to sweep facts under the rug.
Throwing the rug away, let's take a look beyond the surface into how the grey market bears on each of these very important causal effects. Start with your very true "changing product mixes" comment and ask how are they changing. What's your guess: customers buying more of the glitzier newer ultra-decked-out innovated to death versions? You know as well as I do that the balance is shifting towards the stuff that's getting long in the tooth.
You could also probably guess correctly what happens to margins when viable substitutes from whatever source are available in a price sensitive market. If you were awake in that lecture you'd recall substitution is the essence of competition.
And that as available substitutes become indistinguishable from the offered good, the firm can kiss market pricing leverage goodbye.
And then finally note that Cisco equipment is about as close to a functional substitute to Cisco equipment as today's technology can muster. And reasonably new electronic equipment is like baked beans. Still good reheated.
And so the grey market puts downward pressure on margins for the vintage products that make up a currently increasing (and always non-zero) percentage of a company's product mix.
So those of us with our thinking caps on actually can draw a thread of cause and effect from the grey market to reduced product margins. What we can not do however is quantify the size or impact of that thread. And I have not even bothered to try, except to excoriate you for attempting to just wash it away as irrelevant.
Now, or in the future. For sadly what has happened is that a much larger segment of Cisco's customer base is now aware that stuff purchased on the grey market is an effective substitute for stuff bought new. And once established, the grey market is extremely difficult to make go away, leading to an accellerated price erosion on the older products. Which older products form a non-zero segment of Cisco's product mix.
So if you pause briefly in your reflex action to disagree with anything that might be negative to Cisco, and think for a moment, you can see this combination of forces lends an increased pressure on the company to "innovate or die"... thus driving up the cost of R&D and forcing them to run the market closer to the bleeding edge.
High tech at its even finer (and increasingly less profitable) finest.
Is it the only bad thing? No. Is it the biggest bad thing? Hard to say. But is it a serious enough force pointing things in the wrong direction to take note of? Yes.
See, I seriously doubt we will see sustained gross margins in the 60% range ever again Mindmeld. And while it is impossible to attribute all of this to the rise of a grey market, the direct effect is to push margins in the wrong direction. And each percent of gross margin is $0.03/share in EPS. A percent here, a percent there... it adds up.
"Also, I'm not changing my tack. I had a long diatribe when someone posted the article for the first time." Yes. And you argued then, as now, that the grey market was irrelevant to long term margins.
And while we're repeating ourselves, just because you can argue away the weight of one straw by itself as "insignificant", doesn't mean that a load of 'em can't break the proverbial camel's back. You are entitled to be consistent in constructing arguments on such a basis, and indeed that seems to be your style. But they aren't any more correct the second time around as they were the first time.
"You are the one crying chicken little, the sky is falling!"... not even close.
Perhaps you wish I'd join you chanting "pay no attention to the man behind the curtain"? |
