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Technology Stocks : Disk Drive Sector Discussion Forum -- Ignore unavailable to you. Want to Upgrade?

To: Sarmad Y. Hermiz who wrote (7527)	12/12/1999 10:44:00 PM
From: Z Analyzer	Respond to of 9256

<<One thing that puzzles me is why are the DD makers selling below cost ? Suppose Dell calls Quantum and says we need 1 million drives, but we want them at $50 below your cost. >> You see the losses on a fully accounted basis or with overhead absorbtion,depreciation and other fixed costs depending on what you're looking at. However, the drive companies still sell above variable cost (the added cost of producing one more drive) meaning they are better off than if they didn't produce the extra drives at all. -Z

To: Sarmad Y. Hermiz who wrote (7527)	12/13/1999 2:42:00 AM
From: Mark Madden	Read Replies (1) \| Respond to of 9256

"One thing that puzzles me is why are the DD makers selling below cost ? Suppose Dell calls Quantum and says we need 1 million drives, but we want them at $50 below your cost." To expand on Z's post, suppose a drive costs $65 for labor and materials. Perhaps another $25 is chargeable to the drive for costs for administration, selling, research and development. Since the fixed costs are already spent, the company is better off selling the drive for $80 dollars than letting the sale go to a competitor. The increased sales will drop the overhead cost per drive and by contributing to the fixed cost. The situation becomes worst if your company has a warehouse full of freshly manufactured drives. Staffing and ordering of materials are often speculative on anticipated sales. Once the materials and staffing is in place, a company must manufacture drives to keep the unit cost down. If a competitor underbids your prices, you need to bid less for future contracts to sell the drives. The warehouse full of drives will drop in value quickly at the rate drive prices have been dropping the past two years. I hope this helps. Regards, Mark