Factors for continued success.
You said
To be a bull at even these levels one has to believe:
1) DELL will continue to take market share at faster rates and/or
2) DELL will succeed in new markets where they currently don't exist and
3) Competitors will fail miserably at retooling their distribution models or they will
decide that they have no aspirations for increased revenue or earnings.
I agree with you up to a point, which is the degree they have to succeed in each area.
Market share: DELL claims to have 12% of the market now (I think that's the number), which is not a huge or even large share. Why can't it grow faster than the entire market grows? The big companies still only account for less than half of the market, and DELL is still executing better than the others. Also, it doesn't need to accelerate its growth, just keep it steady, which is enough of a challenge. In fact, it doesn't even have to grow market share at all, if it can meet the numbers.
Market size: DELL continually expands its market geographically and technologically (China, storage), thus opening up new opportunities. It appears that they are doing this methodically in several markets, and I believe they have a fairly high probability of success.
Competition: First, this is not a zero-sum game. Markets overlap. Gateway claims it is not competing with DELL. Maybe, maybe not, but certainly Dell is not competing with the same companies in each market. So they are (or will be) less susceptible to one breakthrough company eating their lunch. Second, I think the existing competition is going to have a hard time changing themselves to compete effectively with DELL's direct/JIT/BTO model. It is extremely difficult for a company to reinvent itself, cannibilizing the model that made it successful in the first place. IBM did it with the System360, and maybe there are other examples. I'm not a good enough student to cite them, but I think they are very few. Compaq has to say they are changing to meet DELL's model. I just don't think they can do it in a head-to-head competition. Wouldn't it be funny to see Compaq get out of the manufacturing business in a few years, and team up with DELL to provide service?
In short, I think DELL can succeed in all three areas: Market share, market scope, and competition. The question that I keep coming back to is: who will do it better, and what's their story?
Regards,
Stewart |
