Jason,
Sorry for the long post again.
I am not too sure I would look at shrinking margin as good for anyone.
If the profit margin is shrinking for CPQ, the profit margin will also
shrink for Dell. I am trying to make a distinction between winning in the market place vs winning in the bottom line. Wining market share with no profit is no fun to shareholders. In the simplest form
gross profit = average gross margin x total number of unit shipped.
If gross margin for Dell's server is lower because of competition,
their gross profit from their server sales is lower also. It would not help Dell either.
Subsidising product line is an interesting discussion. I am of a believer that producing lower price PC is necessary for any PC maker to survive long term. When the industry mature (i.e. supply growth and demand growth are in balance), price is king in determining who survive. The more PC someone make, the lower their per nit manufacturing cost, service cost, advertisement cost, office overhead etc. To me, Dell is following Apple strategy 5 year or so ago when John Scully was the CEO. If you remember, Apple at that time stayed at the high end, high margin business. They basically give up
the low end. They made record profit for a few years until the price of Mac is way out of wack from Wintel machine. Dell is basically give up the low end and stay in the high margin business. It works out great when the PC business is growing like crazy. Their profit margin keep increasing year after year. However, if and when the industry slow down, price become a determining factor and low end machines are necessary evil to spread out the cost of the company.
I personally believe PC making is turning from growth to mature industry. The proof is in the slowing unit grow. Remember the unit growth was 25+% a couple years back. This year, we are projected to be 10-15%. We are not taking into account of the shrinking ASP. If we do, we may have a flat to slightly down PC revenue in US this year. I will call this a mature industry...
mw |
