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

To: Jim Patterson who wrote (36594)	4/3/1998 5:14:00 PM
From: Meathead	Read Replies (3) \| Respond to of 176387

Jim, 2B in cash can go a long way. The ficticious battle you describe would destroy the PC industry from top to bottom. Thats what it would take to put Dell out of business and that's why it will never happen. You forget, IBM, HWP and CPQ compete as much with each other as they do with Dell so don't expect them to "get together" and burn their own house down. Here is an simple example using 1st grade math. Cpq cash Cpq Dell cnsmptn ratio Box Net Box Net 2000 140 1800 126 1900 40 1800 126 1800 -60 1800 126 1700 -160 1700 26 1600 -260 1600 -74 3.5x 1500 -360 1500 -174 2.0x 1400 -460 1400 -274 1.7x 1300 -560 1300 -374 1.5x 1200 -660 1200% -474 1.4x Suppose Dell has a 10% cost advantage over CPQ (which they do). Suppose both companies have a net margin of 7% (which is close) If you take a $2000 box, CPQ makes 140 while Dell can sell the same box for 1800 and make 126. At price parity, CPQ goes negative while Dell still makes 126. A sustained price war to drive Dell into negative territory would have CPQ consuming cash at 3.5 times the rate of Dell. With CPQ selling twice as many boxes as Dell (which they do), CPQ would lose $7 for every $1 Dell lost (remember, CPQ has roughly only 3.5x the amount of cash Dell does). With Dell selling 1M systems/qtr and CPQ selling 2M, Dell would run out of money in 16 quarters yet CPQ would run out in 8 quarters. Pushing prices down further where Dell and CPQ would theoretically run out of money simultaneously would cause the whole PC industry pricing structure to unravel and damage it forever for everybody (even the consumer). It would take 6 quarters of HUGE losses with CPQ consuming 1.5x the cash per box for CPQ and Dell to both be "out of money" but not necessarily out of business. You see, the scenario you describe is virtually impossible so I wouldn't dwell on it too much if I were you. MEATHEAD

To: Jim Patterson who wrote (36594)	4/3/1998 5:44:00 PM
From: Sig	Respond to of 176387

Jim: I would like to comment on the cash that Dell has vs IBM. <<You forget, DELL does not have the cash for such a fictious war that I have described.>>> Dell has essentially zero debt. IBM has a $26 bil debt which has been borrowed( 57% of Cap).It would take IBM three years to pay it off if they could save every penny earned in those three years. Meanwhile the banks put restrictions on what IBM can use the money for. If Dell wanted to, they could spring a sizeable loan on their assets and good-will, the same as IBM has already done. Dell has elected to stay away from the wars-in-the-stores between PB, HWP,CPQ, and some others. The best way for Dell to win a war ( if thats what its called) is to become even more efficient and useful to their buyers. This does not take a huge chunk of money to do ,just some agreements with Wang, a lease/purchase plan for buyers, a coordinated shipping plan,new Web sites, and similar things. Sig

To: Jim Patterson who wrote (36594)	4/4/1998 2:10:00 AM
From: jbn3	Respond to of 176387

Jim, You make it sound as if IBM's main business competitor is DELL, that if DELL continues to win market share, IBM will go out of business. Further, you state that DELL does not have the cash for such a fictious war that I have described. Take a look at this wsrn.com Now, according to the above, DELL has fairly formidable resources of its own. If you remember, because of its model DELL has about a 7% pricing advantage over its competition in a static environment, while in an environment in which component costs are decreasing steadily DELLs price advantage also increases dramatically. Which means that in order to merely match DELL's prices, its competitors must settle for smaller margins than DELL. And in order to beat them ... Which CEO of the companies you named is going to stand up and tell the investment community -- analysts, fund managers, and plain ol' shareholders, that his company is going to show a loss for the next x quarters while they try to keep DELL from gaining any more market share. "But please, just hold on to your stock folks. As soon as we have beaten DELL, we will increase our prices and start showing positive earnings again. It may take several quarters and will probably cost us most or all of our cash reserves." If you honestly expect that to happen, then you're paying way too much for your pipe tobacco. This isn't "Never-Never-Land Enterprises" you're talking -- this is real people, real markets, real money, and real world. The competitors will do what they can to emulate DELL's model. But as long as they have to carry the channel with them, they'll find it a difficult swim. Oh, and BTW, CPQ, HWP, and IBM are not exactly "Our Gang". By which I mean that there is a certain degree of conflict of interest in any of them cooperating with any of the others too completely. And a certain amount of mutual distrust, completely baseless, I'm sure. Regards, 3.