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

To: jim kelley who wrote (147670)	11/19/1999 7:24:00 AM
From: rudedog	Read Replies (2) \| Respond to of 176387

Jim - While I have not seen the DELL or CPQ contracts, I have spoken with people on the other side of the equation - the suppliers. The arrangements I mentioned have been a part of how those suppliers manage production planning for a while. In the semiconductor business, the ability to guarantee that a line will run at a certain capacity has big cost benefits. In the market which has existed for the last few years in that business, where supply often exceeded demand, those suppliers saw a business advantage in getting a base level of production sold well into the future so that they could reduce the problem of overproduction, and they have been willing to pass along a substantial portion of the savings in both production and internal inventory carrying costs, in order to get those guarantees from their customers. Those agreements were for the most part structured around the customer taking a certain percentage of production over time on a cost plus basis, rather than taking a fixed number of units at certain points in time. Depending on supply chain constraints, the DRAM customers were able to take advantage of those discounts to a greater or lessor degree. This is not the same as a "fixed price" contract. Production costs do vary but based on different factors than the market forces which drive price in the finished goods market. If there is anyone who has more direct knowledge from the customers' point of view I would welcome the input. But unless someone has reliable information which contradicts the data I have, I will continue to believe that this particular problem was a combination of factors which, because of timing, product mix, and the bias of DELL's purchasing patterns, hit DELL harder than the other vendors, that the numbers have reflected that, and that there will be no corresponding impact from this effect on the other vendors.