Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: hdl who wrote (140930)	8/29/1999 12:06:00 PM
From: rudedog	Respond to of 176387

hdl - That is certainly the concern that everyone in the space is working. But it is interesting that DELL sat back while IBM, HP and CPQ ran a multi-billion-dolllar field experiment to see what the elasticity of the market and the cannibalization of the high end would be. We now know that volume in the midrange is not very responsive to pricing, high end even less so, but it is a driver at the low end of the market. Likewise fixed-function or "appliance" servers can be sold on the value of reduced maintenance and simplified installation and don't need to be priced at cutthroat prices. Also DELL waited until the value proposition in the low end was well defined. If one goes below a certain price point (a point that is admittedly drifting down) then some important features, such as service and warranty, are not a strong part of the product. DELL could try for a straight price play but they have never done that before. More likely in my opinion is great design, a good engineering package, a few key features like better diagnostic and repair capability or better and more seamless internet connectivity, and the DELL name, combined to maintain a price point that gives them a decent margin. This strategy could allow them to differentiate their higher-priced items on similar metrics - expandability, enterprise connectivity capability, or whatever. There will certainly be price pressure in the midrange and high end but that will be there regardless of the low end strategy. It is well known (and has been for years) that margins in those areas will fall. That was the reason for the shift into enterprise products, an area where DELL had almost no presence in 1996, and where they are now a significant player. These products still enjoy 35-40% margins, and DELL is growing that business at more than twice the rate of the industry. They can cover a lot of desktop sales at 15% margin with a few big server sales at 35% margin. Even if the server margins drop into the 30s or high 20s in margin, the ASP in that space is so much higher than in the desktop space, and the growth so much larger in percentage terms, that I think margins will hold up.