Lee -
I'm not exactly clear about what benefits a 5 X R&D budget can have on a business market determined to have customized solutions for their IT requirements.
I hope that my comments are not unprofessional - I am pretty dispassionate when it comes to money, and I have a lot at stake when it comes to DELL, so I'm giving it a lot of thought.
The mistake you are making about customized solutions is exactly my point. CPQ has 25,000 service professionals who do NOTHING but custom solutions - this is in addition to about 18,000 doing traditional break-fix support and 'sales engineering' work. DELL is doing all of that through third parties. They used to use DEC service for both break-fix and any custom systems work - now CPQ has that asset.
DELL will be able to use its desktop and server build to order capability to continue making inroads into the corporate desktop and small server market. But that is not where the big money is, and it's not where DELL needs to go to maintain enterprise growth. They need to get the bigger systems business, and the third-party partner model has NEVER worked in that space. CPQ tried for several years to make that work (and Mike Lambert, the guy driving DELL's enterprise strategy, was the guy who tried and failed to make the partner model work at CPQ). That's why CPQ finally bought a service organization.
Your analysis of the last 100 days (or longer term, say the last year) must be adjusted for the uncertainty the market has felt about how successful CPQ would be in integrating DEC, and whether CPQ would develop a strategy which would at least slow DELL's growth into the enterprise accounts. I believe that conventional wisdom now is that DELL needs to do more to achieve their enterprise plans, and that CPQ has managed to shift into the high end market and is developing some formidable barriers to entry for DELL.
I also agree that CPQ's revenue growth will not match DELL's - but look at what IBM has done in stock price appreciation with almost NO growth! If we assume that CPQ will grow at more than twice IBM's rate for at least the next couple of years, but otherwise achieve similar dynamics, why would CPQ's stock price not follow a path at least as good as IBM's?
Finally, let me add that I don't think that CPQ will be able to stay ahead of DELL's stock price long term - I expect DELL to get their act together and start to climb in 2H99. But that is not certain, and even then, expectations for DELL will be very high compared to CPQ. |
