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

To: Geoff Nunn who wrote (21126)	11/11/1997 1:44:00 PM
From: jim kelley	Read Replies (1) \| Respond to of 176387

"Meathead - Dell is the most efficient manufacturer of pc's in the world. What happens in other industries when one firm enjoys a cost-of production advantage over its rivals? Ans. - It expands production, causing prices and margins to fall, and rival firms are forced to imitate the methods of the low-cost leader. Either that, or they lose money and go out of business. That's the way capitalism usually works, and that's the way it's working in pc's today." Being the most efficient manufacturer is of course wonderful, but it does not mean that you arbitrarily expand production. DELL production is totally dependent on its sales. Thus, DELL will expand production as it expands its sales. You need to understand that manufacturing does not drive sales. Your analysis is completely wrong. "Which firms, besides Dell and CPQ, are currently making money? According to what I've read, IBM, HP, PB, and the Japanese boxmakers ( in their U.S. operations) with the possible exception of Toshiba, are all losing money." I do not think that the top tier companies are losing money. "Moverover, their situation seems likely to only become worse, so there's a real question whether most of them will still be boxmakers 5 years from now. As some other posters -- you yourself especially, have argued, the Dell build-to-order model is very complex and extremely hard to imitate." The other in direct companies have a business model problem. At best they can hope is to approach DELL's efficiencies of manufacturing and distribution. At worst they will pay dearly for their BTO and Channel assembly inititiaves by having quality and service related problems. Additionall, many of the channels will fail to execute the channel assembly and BTO models profitably and will go out of business. In a few years there may be no one else for Circuit City or CompUSA to buy from other than firms like Dell or its direct- channel imitators. There will still be screwdriver shops to supply CPU. "why does anyone today buy from CompUSA when they can purchase an equivalent or better computer directly from Dell for less money?" First time buyers buy from the retail stores. They need to see what they are buying because they do not know much about PC. Knowledgeable buyers buy from DELL because they are confident and they know what they want and they can get a quality product from DELL at a better price than the retail channel. If the two markets (direct and indirect) co-exist for the same name brand, it wouldn't be that surprising to me. Consider that: 1. Some mutual fund investors buy load funds even though they could have saved money by buying an equivalent, no-load fund. According to numerous research studies, load funds, on average, provide no performance advantage over no-load funds. They are not sophisticated purchasers. "2. An investor who purchases 100 shares of Dell through a full service brokerage firm could have saved money by using a discount broker instead. Why didn't he? A possible answer is that he is a novice and needs hand-holding. For the same reasons I believe the CompUSA's will probably exist, even in an all- Dell- lookalike world." Retail stores provide a display front for new products and serve a useful functions with PC novices, printer novices, software products, etc. They are, however, inherently more expensive. "I have a question for you. What do you think the industry will look like in 5 years? Which firms will have the greatest market shares? Do you think HP and IBM will still be major players as they are today? Do you think Pac Bell will sucessfully transition to the BTO model? I hope Jim Kelley will also take a stab at this." 5 years prediction for rank order of first tier players: DELL CPQ HWP IBM Regards, Jim Kelley

To: Geoff Nunn who wrote (21126)	11/11/1997 2:06:00 PM
From: Meathead	Read Replies (1) \| Respond to of 176387

Goeff - I agree with your most of your post so there's no argument brewing here<gg> I think Jim Kelly or Paul Levy can answer some of the questions better than I because I'm no manufacturing expert, but just to respond to a couple of your questions: "why does anyone today buy from CompUSA when they can purchase an equivalent or better computer directly from Dell for less money? You answered that question with: "A possible answer is that he is a novice and needs hand-holding. For the same reasons I believe the CompUSA's will probably exist, even in an all- Dell- lookalike world." Add to that, retail's ability to offer touch and feel with instant gratification, plunk down your money, walk out w/ PC. I hate mail order and rarely buy thru it. No, direct will not destroy indirect, but I've not seen a good strategy as to how 1 company can succesfully sell into both. Furthermore, many folks severely underestimate the growth potential in the markets and channel Dell serves. Look at the IDC numbers regarding PC sales by platform, by segment, by region, by channel and by processor, look at the trends and then look at Dell's share to get an idea of the opportunity I'm talking about. As for the describing the landscape in 5yrs, that would take more time than I'm willing to commit to this thread<g> as I'd have to get blood-n-guts detail. Being a system designer, I know exactly the kinds of systems I'll be designing and everyone will be using in 5yrs and I can assure you, just about everything being used today in the business world will need to be replaced. Will PB or CPQ succesfully transition to BTO? I don't know. But I will predict that in 5yrs(2002), Compaq will still be the #1 PC supplier worldwide with ~$70Billion in annual revenues. Dell will be #2 WW with ~54Billion. HWP #3, IBM #4, Apple #130 Gateway will have been bought out. MEATHEAD