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Technology Stocks : Dell Technologies Inc.
DELL 133.75+2.5%Dec 16 3:59 PM EST
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To: Geoff Nunn who wrote (49319)6/29/1998 9:51:00 PM
From: Chuzzlewit  Read Replies (2) of 176387
 
I agree with everything that you said, but I disagree with your premise that CPQ management embarked on this plan in order to further diffuse ownership. My reasons are as follows:

1. I don't think that CPQ used equity financing for the project; and

2. The routine use of stock options to recompense managers inevitably results in dilution of ownership anyway; and

3. The use of stock to buy other companies also reduces ownership.

In short, there was no need to engage in questionable strategies knowing that they would fail simply to further entrench themselves.
So I don't believe that a more diffuse ownership was Compaq's goal. I think that they blew it in a number of different ways:

I believe they were trying to squeeze competitors out of retail shelf space. This is a commonly employed stratagem among consumer products companies. The idea is to increase the number of models you offer, forcing the retailer to eliminate some other brand. You see this for example in panty hose retailing where all major manufacturers have cheap (low-margin) "fighting brands" like No Nonsense, and premium (high margin) brands like L'Eggs.

I believe that they thought that competitors would roll over and play dead. That's the arrogance of large, entrenched management. It never occurred to them that they would be initiating a price war that they would lose, and so once begun they had no choice but to continue it.
I believe that they didn't think sub zeros would cannibalize their higher-margined machines. In short, it never entered their minds that they were embarking on an extremely risky venture.

So it comes down to this. You think they're avaricious and perfidious, I think they're inept and perfidious (and avaricious too, but mainly inept).

TTFN,
CTC
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