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Technology Stocks : Maxtor (MXTR)
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To: Sam who wrote (127)3/4/1999 4:56:00 PM
From: Ramesh Manne  Read Replies (1) of 467
 
Are we assuming DELL is stupid enough to replace all its suppliers and rely on IBM? DELL is a smart company and its business model keeps its suppliers to be at 100% efficient, otherwise they will not be able to compete for DELL's business on price. To be a DELL supplier, you got to be lean and efficient and change to market conditions rather quickly. I am amazed that all analysts simply forgot the fact that IBM is neither lean nor efficient. No doubt, IBM has a great technology and they are ahead of their competitors in this respect. This is what DELL is interested in the deal. If other suppliers make same components (with same or better quality) as IBM at a lesser price (or with bigger volumes, or with better logistics etc.), DELL is not stupid to pay high price to IBM. DELL is successful company and they compete and win with their their competitors mainly on price and logistics. They can not marry to IBM and pay high prices to IBM and still compete in the market. DELL is a very successful company and to be that way in the future, they need to go to the most efficient supplier.

So bottom line, is IBM a competitor to MXTR and SEG? The answer is Yes. Can IBM compete and win with MXTR and SEG on technology? The answer is Yes. Can IBM compete and win with MXTR (and to some extent SEG) on price and logistics (and to some extent on quality) efficiently? NO. Can IBM manufacture disk drives more efficiently than MXTR and SEG? No. Can IBM change to market conditions better than MXTR? No. So DELL is not going to pay high price to IBM for the components that it can get cheaper outside.

It is a panic selling without much analysis. Think of it, all panic selling (or buying) is based on no analysis.

I am betting on MXTR to be much higher 12 months down the road. I could be wrong but my bet is they are not going to loose business to IBM based on price.

Thanks,
Ramesh
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