Denise, here are some examples of what I would consider long-term negatives for a company like Dell:
1. The emergence of significant competition using JIT manufacturing;
2. A lengthening of the hardware cycle;
3. Saturation of the market;
4. Signs of a chronic inventory glut.
The sector softening you refer to seems quite mild. We are, after all, talking about 15% growth industry wide, with Dell expected to achieve three to four times that number. And the emulation of JIT has yet to emerge. Gateway is probably the most likely competitor to emulate JIT, but they seem to be a bit away from it yet. Remember, you don't have inventory glut with JIT, but that is precisely what Compaq (and perhaps IBM) has. Eventually these companies will figure it out, and when they do, Dell will lose its edge. Dell's edge is not in the box it makes, but how it makes the box!
So I don't consider Dell a tech company in the same sense that Intel is a tech company. One typical exit sign for me in true tech companies is the loss of a technological edge. For example, if AMD were to produce a faster Pentium II type chip than Intel, I would consider that a loss of a technological edge.
The questions you raise are not so easily answered, because superior technology doesn't always prevail. For example, VHS triumphed over beta in VCRs, and the WINTEL consortium prevailed over Apple. These were the results of marketing muscle, so a marketing edge might not accrue to the company with the superior technology. So ultimately the technological edge I monitor closely is market acceptance.
And yes, I would apply the same criteria to the buy decision.
Hope this helps.
TTFN from the old pussycat,
CTC |
