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your post is correct in some cases, incorrect in others. CPQ does get substantially better pricing on many key components, as much as 9% in some cases. In the ones I have looked at the average looks like about 5%. And you are absolutely right, in the standard desktop business they gave up that and more in inventory costs, channel costs, etc. That is the primary reason that they have driven to low inventory position, since in addition to the contra-revenue and price protection problems, they lose just by holding the products in a market where prices are falling.
But that's not true in the consumer space, where the products are pretty much sold before they leave the dock, since they have had a backlog in that segment that goes back years. production never quite catches up with demand, by design. This allows the most efficient manufacturing model (build a huge run of identical products), the most efficient distribution model (ship them all as they come off the line), and the best component pricing (due to volume). This is why CPQ has been able to make good margins on their lowest priced products.
In higher-end commercial products, Dell's model has a big edge. In the volume consumer segment, Dell can not compete. Dell is well aware of this and has no intention of competing with CPQ in that space. Likewise they probably don't plan to compete with Gillette in the razor business, Dell sticks to the areas where they can make money. |
