Techie, you raise too many issues for me to answer in one response, but let me start with a few of your issues anyway.
C, if your fab last year produced 100MPUs and this year it's been only requested to produce 70, what does that mean about units shipped? What were you implying? What am I missing here?
What you are missing is the total number of CPUs produced by all fabs as a percent of the previous period. Remember, companies like Compaq and IBM shifted away from Intel in favor of AMD and Cyrix for their lower end offerings. Thus, looking at Intel distorts what is happening.
As for your reply to 3 on R&D, let me remind you that Dell isn't a Gorilla and that's FAR from being a strength. Although having proprietary technology means R&D expense, not owning it means barriers to entry are minute.
Wrong! what you don't seem to appreciate is that barriers to entry take multiple forms, including but not restricted to proprietary technology. Thus, heavy capital outlays and manufacturing knowhow also provide prodigious barriers to entry. What was the barrier that prevented Compaq from emulating Dell's BTO model?
ASP pressure started with AMD & Cyrix putting pressure on Intel. About 18 months ago Intel dismissed the pressure in their conference calls, 6 months ago the entire tone changed. You should know as well as anyone that Intel is always a leading indicator of what's about to come. Asian economic problems didn't help, but let me remind you that the Asians turned DRAMs into commodity WAAAAY before they had problems. So don't fool yourself into thinking the pressures would end when they get back on their feet.
I discussed the Intel AMD Cyrix point earlier. I think your answer underscores the fact that you don't really appreciate the full nature of the Asian economic crisis. Much of it stemmed from the fact that Asian businesses were never profitable and they relied on currency arbitrage and central bank intervention to make money. In other words, they were dumping product because their central banks made it profitable to instead arbitrage local currency against dollars. The chips were simply used to justify loans from the banks. When the crisis finally subsides I think you'll find that Asian businesses will need to rely on cash flows generated from the business to survive, and that the cronyism we've seen in the past will be dead.
Concerning value added: in a nutshell this amounts to meeting customer needs at a much lower price than can be had elsewhere. The way software is loaded onto machines for Kodak was a real eye-opener. Do read that HBR article, and maybe you should e-mail 3 concerning the contents. I think it will answer a lot of your value added questions.
As for Dell's GMs, it was the mix and the fact that they passed on less of the savings from declining pricing. But the point to remember here is that they will need to get more & more competitive on pricing if they want to book sales, which goes back to my original point. If you want to see what I mean go to their site and check out their price on their Celeron based system. It's a total joke. They do that purposely because they want to push you to spend another 200-300 and buy the MUCH MORE powerful system. But regardless, the only thing that can save their butt is moving into the high end and it's dog eat dog there.
This is simply an example of begging the question. You have assumed your conclusion! Based on the latest quarterly reports Dell produces and delivers machines far more cost-effectively than do its competitors. Clearly, it's the competition that will need to become more competitive, but they are caught because to lower prices will further erode their already narrowing gross margins. You cavalierly pooh poohed the fact that Dell's gross margins increased while every major competitor had major decreases in gross margin. How does this argue that Dell will need to be more competitive???
Well, I seem to be seeing the beginnings of writers cramp, so I'll end here.
TTFN,
CTC |
