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Technology Stocks : Dell Technologies Inc.
DELL 127.92+0.4%3:59 PM EST
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To: Chuzzlewit who wrote (37683)4/13/1998 6:20:00 PM
From: Eddie Kim  Read Replies (2) of 176387
 
>>Eddie, I believe that Compaq has two distinct problems. The first is one is in the high end market as you say. There, they have bloated inventories of obsolete components and machines.

Hopefully this is only a short term problem. There aren't any real indication to say that it is not.

>>But I believe they have a second problem related to the retail marketplace. Jim Kelley and Meathead have repeatedly documented the razor thin margins that existed on the sub $1,000 machines prior to taking into account the dual profits that the channel must achieve (profit to the distributor and profit to the retailer).

The only thing I can say about this is that I trust Compaq management. There can be no doubt that margins are lower relative to high-end machines. Yet remember Compaq was the first company to mass produce these sub-$1000 machines and they said they would do it only if it was profitable. Compaq management continues to say that they make money on these machines unlike several other pc companies. I wish I knew what the margins where for these machines and if Compaq was cannabilizing some of its more expensive sales and not just from their competitors. I just don't know. All I do know is that Compaq had 27.5% revenue margins last year. And that's pretty high.

-Eddie
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