More to Jim P.:
Jim wrote:
"Here is my point again.
To say:
Dell makes $500 on a $2500 PC, 20% margin.
Price cut from INTC of $200
that makes $2500 - $200( from INTC)= $2300
DELL still makes $500 on $2300 PC and Margins Go up to 21.7%
I am saying that this is incorrect."
Well, the math sure looks correct to me. If Dell choose to
preserve "$ per unit" profit, yes, their margins would rise.
You have studied Dell's margins, and lately they have been
holding constant. That would imply that in the above example,
Dell now makes less $ per unit, but chooses to preserve the
20% margin. That is their choice, either way. Big deal.
If they drop "$ per unit" (ie, keep margins at 20%) then
they have a more competitive product, and gain market share.
They also put the hurt on their competition, who can't take
advantage of the price drop nearly as quickly as Dell can,
due to the competition's much-inferior inventory management.
If I had the url, I'd post it, but I read recently in a write-up
on Dell, or in an interview w/ M. Dell, that Dell's internal
cost to build a given PC is 9% less than their competition,
for the reasons stated above.
This low-cost model is an inherent advantage, and a UNIQUE
advantage. Since component prices in this industry ALWAYS
trend lower, Dell will ALWAYS have this advantage. Even if
competition manages to completely stop doing "business as usual"
and completely emulates Dell's current model - which would
take YEARS - if it is even possible (Dell started this way from
day one, a huge advantage - it's really hard to rebuild a car
engine while you are driving it down the road.. which CPQ must
do...) ..by that time dell will have improved things even more -
take a look at inventory levels at Dell, and how they drop each quarter, down to only 7 days of inventory.
Unless Dell screws up, they have the next several years
in the PC industry to clean house - they have a huge
advantage that the competition is unlikely to even
catch up to, let alone surpass. |
