Good try, Rudedog, but I don't think the facts you offer substantiate the point you are making. We all know Intel faces a complex coordination problem involving production scheduling, long lead times, demand forecasting and inventory management. As I understand it, Intel works closely with all its major customers to forecast each one's demand for chips, and schedules its production runs and changeovers partly with these forecasts in mind. To achieve better coordination it also discloses chip prices to everyone well in advance of when they are actually produced. This, along with maintaining pricing flexibility, helps Intel to balance supply with demand. While the advanced purchase commitments you mentioned CPQ engages in may be relevant, they seem minor.
You said CPQ makes firm commitments on the amounts of chips it will buy, and at predetermined prices, and it schedules the delivery dates. You suggested Dell merely provides Intel with forecasts of its chip needs, and pays spots prices at the time of the delivery dates, which are uncertain. Supposedly, then, Intel would rather deal with CPQ than Dell.
Let me ask you several questions:
1. CPQ's willingness to commit in advance on these "futures contracts" doesn't really solve the problem of CPQ's uncertain demand because CPQ buys some of its chips in the spot market, right? Therefore, Intel really doesn't know what CPQ's demand for chips will be even next month. Intel must still forecast CPQ's demand just as it does Dell's. Is that correct?
DISCUSSION: Given the stop and go production pattern CPQ has revealed in the past, such as last May and June when it laid off 5000 workers, forecasting its demand is problematical. Dell may possibly be easier to forecast because production isn't subject to errors associated with indirect channel, demand-forecasting models. Dell's demand is more stable and predictable. If you know what Dell's production capacity is, I would think you may have a pretty good read on future demand.
2. If Intel customers who make advance commitments to purchasing a certain number of chips are given favorable prices, why doesn't Dell take advantage of them? Don't you think Dell would get in on these deals if they were bargains? You imply that only CPQ makes advanced purchase commitments. Can you explain this apparent irrational behavior by Dell Management?
Geoff |
