IMPORTANT: DELL's 300 mhz/64MB SDRAM/6.4GB-HD/32xCDRom/100MB Zip/17" Monitor/4MBvideo sells for $2,399 (according to the March 1998 Business Catalog), $400 more than Gateway. Yet it outsells Gateway.
Why? Gateway's product is designed and pitched to the consumer, not the business customer. Gateway clearly has the best advantage over the other box makers in the war to beat DELL.
The way to grab market is to drop your prices significantly, yet Gateway has incrementally lowered prices as components became cheaper, passing on margin and component cost savings to customers. Obviously not a strategy to crush DELL, but rather to stay alive by making the cut as a top-tier box maker through maintaining market share. The jury is still out on whether or not they can make it work. (Too bad that Ted Waite has such an ego that he didn't take the last buyout offer. He did his shareholders a tremendous disservice.)
DELL will always be able to undercut the competition (if necessary to maintain market share), including Gateway. DELL's volume of business with its suppliers far out-strips Gateway's muscle with the same vendors, thereby allowing DELL to undercut even GTW. If you're INTC, who are you going to make your deals with, DELL or GTW?
DELL hasn't seen a lower demand problem, and therefore has not seen the need to lower prices, yet. If there was one company in the PC industry that had an up-to-the-minute reading on industry demand, it would be DELL. DELL will lower (if necessary) prices when it sees the need to do so. DELL doesn't need to forecast out 80-90 days (of channel inventory) to see demand. They see demand as it happens, on a daily basis.
The fire-sale PCs "in the channel" are all that CPQ is interested in getting sold. They do not seek (although they wish they could) to deal a death or crippling blow to DELL. They're digging themselves out of the hole first. Their problem is not specifically that DELL is eating up their market share, but that they're apparently unable to forecast their market share into the future. I think that this is symptomatic of their underestimation of the effects of DELL's growth relative to their own.
I said early last week that DELL was the #1 box-maker, and that the numbers just had not caught up yet. Now, it appears that that statement may be very accurate. CPQ will do well to maintain their current unit volume when they finally get out of the hole. |
