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Technology Stocks : Dell Technologies Inc.

DELL 133.18

-5.4%

1:32 PM EST

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To: Sig who wrote (113845)	4/1/1999 12:21:00 PM
From: Chuzzlewit	Read Replies (2) of 176387

Sig, the hang-up on this is that so many analysts believe that revenues will remain pretty flat. They argue that if unit sales are up and ASPs are tumbling then earnings growth will be nil. I think the analysis is dead on in the aggregate, but severely lacking in individual cases. I think that they are ignoring two or three important components: First, the decrease in ASP is due in part to a shift of market share from consumer desktops to inexpensive e-machines or sub 1Ks. Thus companies like Compaq are likely to have cannibalized part of their existing sales base to enter this market. Dell has not yet participated in these markets, and indeed the customer base that Dell attracts is unlikely to switch to less expensive machines. Second, part of the decrease is the result of Dell's aggressive pricing in such high profit areas as low-end servers and mass storage. The scramble for market share has resulted in a significant drop in street prices. These considerations lead me to believe that Dell will continue to experience strong incremental sales (and earnings) because Dell will have taken customers from other sources. However, desktop revenues may well stay flat even in the face of increased unit sales. Y2K budget lockdowns may also become important later this year. So I think that we are entering a phase of consolidation, where the battle for survival of the the most efficient will become increasingly apparent. I would not be surprised in the least to see HWP and IBM drop out of the desktop space. Nor would I be surprised to see CPQ try to migrate away from the desktop and try to strengthen itself further in enterprise computing. If this is true we will see decreasing competition within a year or so, and the remaining players will become stronger. TTFN, CTC

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