Steve,
Care to comment on these words from Michael Dell re: CPQ/DEC deal? Would be very interested in your analysis.
Bill (Long CPQ!)
<<"I gotta believe these guys have just handed us a huge gift," he said, jazzed from a cup of coffee. Sure, Compaq had just bought a huge service organization. But what good is that, Dell asked? The bidders for big corporate projects typically include IBM, Hewlett-Packard, maybe Digital, and then a host of independent service firms like Andersen Consulting, EDS, and KPMG, which team up with a hardware provider like Compaq or Dell. Consultants will look twice at pairing with Compaq, said Dell: "We've had calls from virtually all the big service companies, saying, 'We don't think this deal is a good idea. These guys will be our competitor. We need to work more closely with you.' "
Besides, he added, this combination puts Compaq on the wrong side of history. "The companies that have won in PCs and networking were not the broad, diversified General Motors of computing. They were the fast, flexible, focused companies--Cisco, Compaq, Dell," he said. "We believe in focus. Can you be both a leading service company and be as efficient as Dell? If so, somebody is going to have to explain to me how that works."
Dell sells direct to customers; Compaq sells predominantly through resellers. As a result, Dell has lower prices and less inventory. "Customers ask, 'Why should we pay a markup of 7% or 8%?' Our revenues are growing twice as fast as Compaq's." Over the past four quarters reported, for example, Dell went from $6.9 billion in annual revenues to $11 billion, up 60% from the prior four; Compaq's annual revenues grew from $20 billion to $24.6 billion, up just 23%. Proof, says Dell, of the flawed logic that every hardware maker needs a strong service division in-house. "Investment bankers always come to us and say, 'You ought to buy this or buy that,' and I tell them, 'We are growing 50% a year anyway--why should we buy anything?' They don't have a good answer." >> |
