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Technology Stocks : Dell Technologies Inc.
DELL 138.940.0%Dec 5 9:30 AM EST
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To: Geoff Nunn who wrote (48556)6/23/1998 11:00:00 AM
From: rudedog  Read Replies (1) of 176387
 
Geoff -
I agree that Dell is smart to reduce their exposure in the sub-1K market as long as they can maintain their growth in higher-profit lines. Knowledgeable people on this thread have discussed the economics of this for Dell and it's just not the business for them at the moment.

I think that the idea that sub-1K in general is not profitable for CPQ is harder to justify. We need to separate the products which were designed for a $1500 price point and then unloaded at $999 (the commercial inventory which needed to be cleared out of the channel) from the consumer products designed from the get-go to hit that market. Margins on CPQ's consumer products are a little lower than Dell's target of 22% but CPQ's COGS is also lower on those products since there is typically no middleman - they are sold directly to the retailer. The consumer distribution is very efficient both in production costs and distribution. It is just not well suited to the JIT model, so Dell would be at a competitive disadvantage.

If Dell ends up moving into that market they will have many of the same challenges now facing CPQ - a conflict between the direct model and retail sales. They will have the additional disadvantage that the volume production and distribution model has cost advantages over Dell's production methods in this market space. Dig back in the thread and you will see a lot of good analysis on this point from Chuz and others.
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