even Meredith does not know the future demand for his wares. If his
competitors cut prices in the "mid to high" segment of the market Dell _HAS_ to follow suit. That is going to bring down the ASP, and the GM(and even the component price cuts won't save them). It is very doubtful that Dell can survive a price war(but I will be impressed, flabbergasted(and shut up!)if it continues its growth rate over the next 2 quarters.
You're not listening!
1. First, the price cuts being talked about are primarily in older inventory, which the others are trying to clear out (DELL, because of its model, has none).
2. DELL is the one who initiates price cuts in the new, higher-margin technology, passing savings on to its customers sooner than anyone else can, and garnering market share while squeezing competitor margins.
3. I don't think DELL has to maintain Average Selling Price (ASP) --although it does -- in an environment where component costs are falling.
If my sales price is (1997)a function(component costs + margin + labor/overhead) and f(component) decreases by 50% in 1998, tell me why can't my ASP fall to reflect that without reducing unit margin.
4. Now add in the increased market share. I believe that according to latest figures, DELL has about 6% worldwide market share. If that figure rises to 7% next year, while only maintaining margins, that equates to about a 16% earnings increase.
5. Now factor in worldwide sales, estimated to increase by 15-20% this year. That is an additional 15-20% increase in earnings, even if DELL doesn't increase market share.
6. Both Europe and Asia (especially China) are expected to show significant sales growth this year.
Regards, 3. |
