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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Elwood P. Dowd who wrote (89744)	2/18/2001 12:55:18 PM
From: Elwood P. Dowd	Read Replies (1) \| Respond to of 97611

From the DELL thread: Dell holds off on projections Turbulent times leave PC maker leery of estimates 02/17/2001 By Leah Beth Ward / The Dallas Morning News The future of the computer hardware business is so foggy at the moment that Dell Computer Corp. isn't offering any clues to investors beyond the first quarter of this year. Having cut its revenue projections three times last year and missing forecasts once, the company based in Round Rock, Texas, is a bit timid about crystal-ball gazing, analysts say. "Due to economic uncertainty, Dell shied away from full-year guidance," Ashok Kumar, an analyst with U.S. Bancorp Piper Jaffray, said Friday after Dell's earnings release Thursday. Dell executives also backed away from an April opening date for a 500-employee sales-support and call center in Fort Worth. "If we can gain market share while maintaining profitability, that's a very good strategy," Michael Dell told Bloomberg News in a broadcast interview. In the brutal fourth-quarter PC environment, Dell traded profit margins for higher sales. It passed savings from declining component prices on to PC customers. The strategy translated into a 2 percentage point gain in market share. Profits may have been flat but they were still bankable. And with the elimination of 1,700 jobs this week, Dell figures it can further protect profits. Shares traded down as much as 6 percent Friday after the company lowered revenue projections for the first quarter and reported fourth-quarter earnings that missed expectations by a penny. The stock closed down $1.50 at $23.50. Dell executives made it clear in their earnings comments that they plan to carry out the price-cutting strategy in nearly all lines of business. They will focus in particular on sales of low-to-mid range computer servers which, by their relatively uncomplicated nature, play to the company's strength in direct sales over the Internet. Dell customers configure, order and pay for their products online while competitors, for the most part, still use supply chains that add costs. "The whole idea here is that Dell has the ability to pass on to the customer the fundamental attributes of the direct model," said Richard Chu, a managing director at SG Cowen Securities. Dell suffers few, if any, supply-chain inefficiencies and boasts a five-day inventory turn, compared with weeks for its competitors, Mr. Chu said. Mr. Dell predicted that Compaq Computer Corp. in Houston will not be able hold Dell back in the low-end of the server market. "If they were to try to compete with Dell they would have to essentially incur substantial losses," he said. But Compaq, for now, still holds the No. 1 spot in the market for industry-standard – or low-end – servers, according to International Data Corp., a Framingham, Mass. research firm. Compaq is also ahead of Dell in high-end, high-performance technical computing, recently winning customers such as Ford Motor Corp. and Daewoo Motor Corp. The company said at a recent conference that high-end servers make up its most profitable line of business. But here, too, Dell is talking aggressively. Vice chairman James Vanderslice, said Dell's business in servers that allow businesses to add processing power as transactions increase grew 73 percent in the fourth quarter. "We are gobbling up market share in that space," he said. Mr. Chu noted, however, that the high-end products are more difficult to turn into a commodity market, which is Dell's forte. "I don't think Compaq's going to give that market away," he said. Brooks L. Gray, of Technology Business Review in Hampton, N.H., said Dell's competitors have hardly been sleeping since the direct model became so widely admired. "Most of them have substantially improved their cost structures," Mr. Gray said. "Look at IBM Corp.," he said of the computer giant, which quit the retail PC business in 1999. "They've returned their corporate PC business to profitability." E-mail this article to a friend Pricewaterhouse Coopers • Q2 Money Tree Survey A quarterly study of equity investments made by the venture capital community. Web directory • View our Directory PR Newswire • The leading source of immediate news from corporations worldwide.

To: Elwood P. Dowd who wrote (89744)	2/18/2001 1:34:47 PM
From: rudedog	Read Replies (1) \| Respond to of 97611

El - I think this actually puts CPQ in the driver's seat, if their real intention is to own the "edge of the web" architecture. DELL is clearly saying that they are going back to the "fast follower" mode to the virtual exclusion of any architectural leadership. If CPQ sets the standard, they can count on DELL following. This makes DELL almost like a CPQ subsidiary in driving CPQ's architectural standards. After all, the client systems sell the "sizzle" - that's what people see. But it is the things on that client device - the content, the context of the user experience, the ability to DO things - that makes the back end infrastructure important. CPQ gets 90% of its profit from the sale of that infrastructure. So in a way it hardly matters whether CPQ or DELL sells the client box - the more of those clients sold, the more infrastructure is needed to drive them, with 10 to 1 leverage for CPQ. I don't think CPQ could have wished for a better shift in strategic direction from DELL. It decreases the competitive impact on CPQ, drives CPQ's real profit engine, and consolidates the client market direction with DELL paying the way. DELL gets to eat the 18% GM and tough market, which they are well equipped to do, while CPQ collects the big margin for their infrastructure sales. DELL has no choice in the matter - their business model and management direction won't let them do anything else. The new game is not inventory turns but technology turns. If the way the industry looks at itself, and the architecture driving infrastructure, is changing every 3 to 6 months, then CPQ, as a technology leader, will always understand where the next turn in the road will be. DELL, who has to wait until those trends are validated in the market, and the engineering is readily available as standard components, will be 3 to 6 months behind. So while DELL will surely be able to maintain a successful client business, they will continue to have no ability to challenge CPQ for leadership in defining the 3rd generation internet, or in reaping the rewards of that leadership position in the higher margin product lines. Sure, CPQ needs to take a leaf out of DELL's book on excellence of execution in the client space, and needs to remain a significant player in that market, so that they can continue to drive standards which move their overall vision forward. But whether they are #1 or #2 in that business hardly matters. Increasingly, from an architectural perspective, I will be looking at the combined impact of CPQ and DELL in the client space to drive CPQ's growth engine.