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

To: Eddie Kim who wrote (37660)	4/13/1998 4:15:00 PM
From: Meathead	Read Replies (1) \| Respond to of 176387

We can pick nits about ZIP drives, DVD, subwoofers, AGP capability etc. Dell has a pricing advantage that is structured in real time. If Dell and CPQ were to design the exact same box and build it at the same time, CPQ's COGS would be lower due to their component cost advantage from larger quantities and bulkier orders not associated with JIT. Also, they stuff their own boards which is a further cost savings. Their operating expenses as a percentage of sales is about 5% higher than Dell's however and that's huge. The crux of the cost model boils down to time. Inventory costs are a profit killer where major component costs decline weekly. These declining costs are a constant in this industry... not something that happens seasonally or occasionally. Dell recognized this trend many years ago and thus optimized their business model to fully exploit it. Costs will continue to decline today, tomorrow, next week, next year and on and on until advancements in processor, memory, graphics and software cease. CPQ and others must have really been asleep at the wheel to let Dell design such a tremendous advantage in delivering leading edge technology. What Dell is saying now is that the CPQ brand name no longer deserves a premium. Dell is also saying that their customers are no longer buying from them based solely on the "price of the box".. TCO is more important (average yearly TCO for a corporate networked computer exceeds $6,000). To be sure, CPQ has no advantage over Dell in terms of electrical performance and reliability. The major area for product differentiation is in ID (industrial design, or "chassis") and Dell designs world class, award winning, patent protected, highly servicable chassis'. Dell believes, as well as their corporate customers, that the top two efficiency items are delivery (ease of purchase) and support (e.g. personal web pages with every hardware detail imaginable and asset tracking). Service is third and while Dell's is good, it's argued that Compaq's is better due to their vast reseller network. But large accounts like Ford and Boeing don't need that level of service because they employ professional full time IT staffs. Right now, today, Dell's advantages are profound. That's why they are growing at market multiples and support a PE of 50. Successful duplication or destruction of their model by others would take years if it could or can be done. It's like two well conditioned marathon runners. They each run 13 miles but in different directions. What are the odds that the guy running the wrong direction will catch up with the other by mile 26? MEATHEAD