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Technology Stocks : Dell Technologies Inc.

DELL 133.35

+0.1%

Nov 28 9:30 AM EST

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To: Meathead who wrote (44684)	5/25/1998 9:29:00 AM
From: rudedog	Read Replies (1) of 176387

Meathead - Another generally accepted dynamic is that as a vendor shifts focus to the left side of the curve, excellence of execution becomes more and more critical to success. The profit curve is almost exponential as the curve heads toward the leading edge, so the closer a company can get to that edge, the better their margin. Dell's execution model combined with a very savvy marketing strategy is one of the reasons they have been able to maintain and even grow margin despite what happened to CPQ, IBM and HWP last quarter. CPQ's model has been to 'surf the wave' - i.e. pick a point just a little back from the edge where their current execution model plays, and make it up in volume. This has obviously been less and less successful as Dell pushes in from the left. CPQ will either have to make a big change in execution strategy (hard to do) or change the overall mix of what they are doing to reduce the impact of this segment of their business on overall profits (the direction they seem to be taking). You are certainly correct about where the purchasing decision is made for the high end gear. Financial metrics are applied later in the cycle even for mainstream products, high end products are determined primarily by utility value. This is even more true of server products, where the decision is most often made by the database or ERP consultants - 'this is what you gotta have to achieve your desired service level'. As we have seen, both CPQ Dell have also been doing things to provide those decision makers with more ammunition to counter the financial guys - programs like the back-end buyout of older equipment (with the money applied as a discount to new purchase) allow the departmental buyers to fit higher end hardware into their existing budgets. This type of program has a big advantage over a program which just takes a tax write-off - the tax benefit goes to some corporate account and therefore does not affect operational behavior, whereas the discount hits the buying department's P&L directly.

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