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

To: Fangorn who wrote (35046)	3/20/1998 2:10:00 PM
From: KENNETH R SANDERS	Respond to of 176387

STEVEN>>>>>>If Dell passes the full price cut through of course ASP will go down but because the profit per machine will stay the same profit margin will go up. If they make $500 on a $2500 machine that is 20% profit. If they make the same $500 on a $2300 machine that is 21.7% profit. How can this possibly be bad even if they sell exactly the same number of machines? <<<<<<<<<<<<<<<<GOOD CALL, STEVEN<G>

To: Fangorn who wrote (35046)	3/20/1998 3:04:00 PM
From: Jim Patterson	Read Replies (4) \| Respond to of 176387

Price reduction and margins. I am going to add a few things to your model. machine sells for $2500, $360 profit(PC) + $140(20% on processor) machine costs 2000 to make. Machine Costs $1300 to make without Processor. New peocessor is $500 + 20% is $600 New cost is $1800. Add back $360 and $100 New price is 2260. with profit of $460 and Margin of 20% Lower revenue and lower profit per machine. Not quite as nice as you like, but still not bad on the margin. Margins are stable, but the profit on the machine declined $40, that is 8%. That hits the bottom line. This is why Units have to grow 100% and Revenues grow 30% and profits grow 50%. If your simple model worked, then EPS growth would match Units shiped, but that relation does not exist. If that were the case, then Dell would still be making $200 on 333 chip, (it started around$1000) But we know that is not the case. If it were, DELL's margins would be rising. They fell last quarter, as did ASPs Bottom line, You can't make as much money on a $500 part as you can on a $700 part. DELL just adds HD, DRAM, Video, or a leather carrying case to maintain ASPs and Margins. Eventually that won't work any more. Jim