Jacob -
You say: PCs are toasters, now, and Compaq's business model doesn't work for selling toasters. Since PC makers can no longer differentiate themselves on service, market share will go to the low-cost hi-volume lowest-inventory producer.
But in the 'toaster' category, CPQ is a lower cost producer than DELL. By this argument, you should short DELL and go LONG on CPQ.
Look at consumer products. CPQ has shown the ability to make and sell PCs at a price more than 10% under DELL, yet make a 20% or better margin. In the volume, 'toaster' category, DELL is at a disadvantage, since they have the ability to configure built into each machine, and that costs them money.
In this category, CPQ also has very low inventory, both on the supply side and on the sales side. Consumer products are built in a single run, the parts are pre-ordered in large volume (at the lowest costs in the industry, in some cases as much as 20% less than DELL's costs - this has been discussed in depth both here and on the DELL thread). The machines are built in a single run of virtually identical configuration. Finally, they are sold before they ever leave the dock - the consumer products have had a 4 to 8 week backlog since 1995, and CPQ maintains that intentionally to keep the outbound inventory as close to zero as possible.
You are making the same mistake that many other posters (and some analysts) have made - which is confusing the commercial desktop business, where DELL does have a significant business model advantage, with the consumer business, where DELL has a disadvantage. The market presence reflects this - DELL has never had a significant presence in the consumer business. They don't make 'toasters'.
Look for CPQ to move more products into the consumer manufacturing model - especially low end servers. I agree 100% with your argument - you just picked the wrong company as the weak player in the toaster market.
BTW I would not short DELL either... |
