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Technology Stocks : Dell Technologies Inc.
DELL 122.46-8.5%Nov 17 3:59 PM EST
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To: GRANOLA who wrote (56642)8/6/1998 5:07:00 PM
From: Chuzzlewit  Read Replies (2) of 176387
 
Granola, you asked Has anyone considered cpq's competitive advantage of manufacturing?

This has been done endlessly, and the conclusions are this: Compaq is at a competitive disadvantage to Dell for several reasons.

1. CPQ maintains a high level of raw materials inventories. This means that any cost advantage it initially had due to volume purchases is rapidly attrited due to decreases in component prices.

2. CPQ is on a forecast model rather than a demand model. This means it buys components that may become obsolete during the inventory phase.

3. CPQ is using a much less efficient manufacturing model which has a tremendous impact on the capital deployed for manufacturing. This is manifest in the relatively low ROIC compared to Dell. Put another way, Compaq is a capital intensive operation compared to Dell.

4. CPQ is using resellers for the final assembly of their machines. This has the potential of causing uneven QC.

Compaq enjoys only one advantage, and that is that it is able to purchase components at lower prices than Dell. However, because of the loss of value of components held in inventory, it appears to me that the actual cost of components may be higher than Dell's.

TTFN,
CTC
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