John, that really is the $64 question isn't it...how strong are the barriers to entry for firms seeking to compete in Dell's corporate space? If a stock market analyst had superior insight into this question, he/she would have a tremendous advantage in knowing whether to buy or sell Dell shares. For Dell investors, it is far more central IMO than the issues our demand-focused bears have been raising. It is pretty much the question Fortune Magazine posed: Can Anyone Stop Dell?
From every indication it looks like Gateway and Micron aren't in the game. Ingram Micro may be another story however. I don't know much about the company... just that it's large and well financed, and managed by two former Dell managers. It's said to be ambitious. You get a sense of that when you read their press releases, which sound a little like Dell's. There's lots of discussion of JIT inventory and other techniques IM intends to deploy to control costs. It's BTO model, however, to my knowledge is untried. It intends to produce and distribute not only under its own label(s) but also for the majors like CPQ and HP. Unfortunately, I don't know enough to begin to assess IM as a threat to Dell, and wish someone who knows more would share their knowledge with us.
The leading boxmakers have all promised to develop a direct-channel approach similar to Dell's. Maybe I'm wrong but these promises are looking less and less credible. If CPQ's recent boast that it sells more units over the internet than Dell - which gave us all a good laugh - is any indication of its seriousness, then good luck CPQ see you in Heaven. I'm beginning to think IBM, CPQ and HP are in a quandary similar to that faced by full service brokerages when discount brokerages - and later internet trading - came along. They knew it would hurt them yet they were powerless to stop it. Both developments were incompatible with their business model, and for them to try competing would only make things worse. Some of them keep telling the press they have internet trading planned, but as of yet none have done so.
John, I agree with you. I think the barriers are becoming stronger. So does the stock market apparently. When I invested in Dell, which was May 1996, the P/E was 16/1 compared to about 20/1 for the S&P 500 stocks. The stock was perceived then the way the bears still perceive it: just another boxmaker, commodity product, and weak barriers to entry. One need only to look at Dell's current P/E to see that the market no longer believes that. A paradigm shift has occurred in how the market perceives the barriers to entry. Only a few diehard bears cling to the earlier perception. Everyone else understands that the entry barriers today, in the corporate space anyway, are formidable.
Geoff |
