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

To: Jim Patterson who wrote (33563)	3/10/1998 11:34:00 AM
From: SecularBull	Read Replies (1) \| Respond to of 176387

ASP's drop because DELL passes component savings on to customers, not because DELL is shrinking its margins.

To: Jim Patterson who wrote (33563)	3/10/1998 12:07:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 176387

Jim, there are two processes simultaneously affecting Dell's ASP. The first is the decrease in component prices which Dell uses to drop prices without eroding gross margin. This price drop is an incentive to buyers, so all other things being equal gross profits increase because sales increase. This is the effect of price elasticity of demand. The second process is Dell's shift towards the higher end of the corporate market. Dell is selling more servers than it used to. These have higher ASPs than desk-top machines, so average ASPs won't change as radically as a company with a static sales mix. The thing that makes Dell unique in this industry is it's efficient inventory system. This allows the company to take full advantage of falling component prices -- an advantage that its competitors do not share. Thus, all other things being equal, Dell will have lower costs than its competitors. The alternate model is to buy in quantity and get a lower price, but this has two drawbacks: First, there are expenses associated with handling inventory -- warehousing, shipping etc. Second, there is the risk of inventory obsolescence if sales forecasts are incorrect. Generally, businesses prosper when their cost of components, raw materials, or labor decline. Increasing costs is generally an argument that bears make. It is indeed odd that so many bears try to use falling costs as an argument for their point of view. To show how ludicrous this is, try this out for size: if the UAW were to get a major wage increase from the automakers the stock of GM should rise because the selling price of cars will go up! This is essentially what many Dell bears argue, and it makes no sense. Regards, Paul