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

To: jim kelley who wrote (20898)	11/8/1997 2:14:00 PM
From: Chuzzlewit	Read Replies (3) \| Respond to of 176387

Jim, the second point first --I'm guessing that there was a small jump in margins because of the drops in components (memory, hd's, cpu's), but the bulk of the price drop was passed along to customers. The accounting issue behind the margins is that when a company inventories parts, it either maintains that inventory at cost, or it writes the inventory down to current market values. When prices are dropping, in the former case the COGS is higher than current market conditions would warrant, thus reducing GM, and in the latter case you have a one-time inventory write-down. In any event, one of the reasons Dell's business model has been so spectacular is that by maintaining negligable inventories of components with rapidly declining prices it has no inventory risk. Being able to take advantage of steadily lowering prices may be more important than buying in quantity. This is the reason I questioned Steve at length about his contention that CPQ was the low cost producer (he never did respond with anything that bore on the question -- he gave me a series of street prices, not costs). Regards, Paul