Thnx for your comment.
My understanding is that Dell sells 80-88% of their PC units to big business, education, government.....(I have not worked in purchasing for any of these but I would think) that it is a different dynamic than the consumer market.....Purchasing managers understand much better the concept of cost of total ownership argument (that bodes well for Dell), do a better job studying up on who has the latest tech boxs, reliability, are less afraid of a direct selling model...are less cost sensitive, and have a longer decision-making cycle......Even if there was some price sensitivity involved in their decision, I would be surprised if CPQ's price cuts would have had any sort of immediate impact on purchasing manager's decisions in the 1Q (also, these managers' are usually seeking the latest technology, specific technology, and have already made up there minds, and submitted their proposals for Q1 before the announcement of CPQ's price cuts....etc). If CPQ's price cuts are to have the desired effect, I would think that Q2 would be the one to watch.....I'm sure Dell will comment about this when they release earnings on May 17, maybe before (Thursday's analyst meeting?). Remember too, that Dell has also made targeted price cuts, and has a track-record of doing a good job of meeting estimates in such price-aggressive environments (and, indeed, as workstation/server, Europe/Asia sales become a great part of sales- and continue their great growth rates and margins, Dell has a greater opportunity to offset any loss in units sales/ASP for US PC sales with these areas...Also, internet sales, continued improved inventory turns, and reductions in price components should also provide an offset .... Meathead, have I accurately summed up this argument? Would love to hear from anyone (bulls or bears) who think why Dell can not offset to meet it numbers, but show me some data!
I could see CPQ maybe have some impact on the decision for a small businessman, or the consumer market....but a couple of things confort me. (1) As you state, even with CPQ's cuts, Dell is still very competitive, (2) Dell has never really competed in the low-end and/or people who want the lowest possible price...These are not really lost sales (they probably never would have gone with Dell in the first place)..CPQ is probably cannibalizing their own margins with their price cuts! (3) These two areas (small businessman & consumer) are a small % of total sales, and offsets exist.
I also believe that Dell anticipated this aggressive pricing enviroment as early as Nov/Dec (as they saw that CPQ was channel stuffing), and I feel confident that Dell would have told us in February (release of 4Q, '98 earnings) if CPQ's impending price cuts would have an impact in 1Q earnings/sales...I simply cant believe that Dell has been blindsided by CPQ's troubles, and price cuts, and that Dell will subsequently reduced earnings 1Q (from estimates) as a result (and blame CPQ, aggressively pricing enviroment as a result).....Given Dell's track record, there is ample evidence to believe that they have told us the truth until now about the likelihood of CPQ having any sort of significant impact to earnings/sales, that they have anticipated this, and that their offsets will leave them in good shape with any loss in sales/earnings that would/will occur.
There is no doubt that if a company like CPQ puts boxs in the retail channel in a major way, advertises these price cuts, and prices at their boxs at a loss or ridiculous margins, CPQ will generate some sales..Some people are going to want to shop retail for their computer (and not buy direct, no matter what the argument), and some are not going to understand the total cost of ownership argument and buy the cheapest thing possible...But Dell doesnt want to be in this market.....has never competed in this market, can not make a sufficient return in these market, and is right to stay away from this market (when there are other high growth, high margin markets to pursue).
Finally, Long-term bulls, appreciate your patience with those of us on the thread who bring up "tired old arguments" (we are working up to your knowledge level)....apreciate it your comments to this msg, and bears go at it too......(If you are arguments are coherent)....Tnxs all. |
