Intel's lower prices, Part II
I think it puts DELL in the catbird seat.
DELL now has added pricing flexibility -- it can either enjoy higher margins for a period, or reduce prices immediately to pressure the competition -- but it is DELL's choice!!
We know that CPQ, HWP, and IBM are striving to reduce some excess, primarily outdated, inventory. If DELL forces them to now cut prices on their upper models, then their margins are again reduced on their current stock, and the improved price on higher end models may make it even more difficult to reduce their bloat.
I think the current situation limns in capital letters and red ink the inherent advantage of the JIT assembly over the channel. 1) If a corporation using the traditional mode miscalculates demand, such as CPQ obviously did, it may take them several quarters to unload the excess inventory, and it may be impossible to do so at a break-even point. 2) This effect becomes much more acute in a period of sharply falling component prices, because your whole product line is stagnant and subject to wildly decreasing margin levels. 3) Now, IF your competition is in the same boat, it's one thing. But when your main competition is not only NOT subject to these problems, but actually benefits from them to increase pressure on you, I think it is fair to say that "You're paddling a leaky canoe in a piranha infested river!"
Very DELLish, 3. |
