AlanH, it all depends on the nature of the demand curve, doesn't it?
From the looks of the income statement, in comparison to those of CPQ, IBM and HWP it certainly appears as if Dell has a cost advantage. That means that absent falling component prices competitors must view cuts in prices as ploys to gain market share at the expense of profits (rather than attempts to increase profits by taking advantage of the elastic nature of demand). In short, if Dell's competitors wish to show a profit in computers they cannot afford to lower prices if component costs don't drop. On the other hand, Dell's gross margins went up this quarter which would provide them with a tremendous cushion in case of a price war.
So you must ask yourself what company will be hurt the least in the environment you have envisaged. My answer is Dell. What company will be hurt the most? I believe it will be HWP. Which company will gain the greatest market share? I believe it will be Dell.
As to your second point, the rate of Dell's growth vs. the market's growth rate converging. Yes, this will eventually happen, but Dell currently has only around a 10% market share. That means that it has plenty of room to grow at a much faster rate than the market before saturation.
In fact, you can solve the problem with the following equation:
0.1*(1.45)^n = (1.15)^n
where .1 = Dell's market share
45% = Dell's annual growth
15% = the market's annual growth
Solving for n (where n is the number of years), and given these assumptions the answer is approximately 10 years.
TTFN,
CTC |
