Jason,
sorry for the long post again.
I think you have a very interesting question about who would benefit from Dell entry into the server market. I think your thesis is that Dell can double the market share from 10-15% by cutting the price and reduce the margin to 23% or so (from 50-60%)for server market.
When a company like Dell (or any other big company) decide to enter into a market, there is a lot of planning, projection, and cost upfront. They need to project the price point, number of unit sales etc. and then they put together plans for a specific number of test equipments, number of technician, order a specific number of parts (even for JIT manufacturing :->), support people, training etc. All these are money that they need to pay upfront to build a business that can execute the plan. That become the fix cost part of the business.
The success and failure of Dell's entry into the market is partially rely on their execution, and partially rely on the accuracy of their projection.I don't think anyone in this thread will question Dell's ability to execute their plan. However the projection is going to be an entirely different animal.
Dell enter the server market very seriously a few quarters ago (may be wrong on the timing. Correctly me if I am wrong). The market condition at that time was execellent for Server, overall unit growth for all PC was about 15-20%, server grow is probably much more than 15-20% with a big fat margin. Given the history of how fast Dell grows and the need to maintain a 30-50% profit growth rate, I would image that they will build a very aggressive plan in how fast they will grab market share with a very accommodating business environment where competitor won't fight back too much. That means projecting a higher price for Dell's server and more unit volume at a given time.
However, the market condition today is decidedly different than 1 year or so ago. We have already a glut of server in the market from CPQ, IBM, and may be HWP. The pricing is probably dropping faster than what Dell originally planned and the volume is probably smaller then they planned. What that mean is over capacity (building more factories, hiring more technicians than needed) and higher fix cost per machine.
My guess is that they are probably not going to make as much as they plan to in the server market in the next few quarter. If on the other hand, they built a very conservative plan and taking into account for the possible price reduction of the competitors, then they will do reasonably well and my Aug Put is fried :->>.
mw
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