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

To: K. M. Strickler who wrote (39078)	4/27/1998 9:02:00 AM
From: rudedog	Read Replies (1) \| Respond to of 176387

Ken - good post, I may put up for one of those beers... Both Dell and CPQ have discussed EVA as a control variable in making financial decisions, at least internally. CPQ now has this as part of the management bonus formula, I don't know if Dell has gone that far. EVA is useful as a single measure which predicts how the financials will look to wall st. In that sense JP is correct. The JIT-BTO model can hardly fail. But the benefit gained from taking a 60 day inventory lead to 4 days is huge, while the benefit in going from 4 days to 3 is much smaller, although probably just as hard to achieve. IMO Dell will have to look elsewhere to improve their model, it will be very hard to get under 3 days order-to-shipment. Incidentally I have no doubt they will find other areas of the business where radical thinking can create a business advantage, they are the best in the business at that kind of analysis. CPQ guarantees certain volumes to its largest suppliers, and more importantly, schedules the deliveries well in advance. As the largest customer for most of these vendors, including Intel, and also the most stable in terms of predictable demand, they get the best prices. Is this benefit worth the pain later in the channel? looks like CPQ decided NOT since they will have to negotiate (or have negotiated) flexible arrangements to accommodate their ODM model, which will certainly cost them some supply cost. But in the past this has given CPQ nearly a 5 point advantage in parts cost over Dell, this is one of the reasons CPQ was able to maintain 27% margins even with a less efficient model. Dell is forcing the industry to play by its rules in terms of supply management. But CPQ has many long term contracts, some running many years into the future, which will give it a parts cost advantage. They don't have to be quite as efficient as Dell to make the same margins.

To: K. M. Strickler who wrote (39078)	4/27/1998 1:17:00 PM
From: Jim Patterson	Read Replies (1) \| Respond to of 176387

RE: Won't bet ya $1, but how about a BEER! We can toast each other on some warm summer day! How do you shake hands over the internet ? :) You are On. :) On the DEBT, While the proceeds from the debt may not be the same $$ that buy the stock back, Issuing debt and building factories and buying stock back, You are still spending cash on both regardless of the source. No debt and it is one or the other. If you have to look at the way I am, if they buy back any stock now that the debt is done, then they are using the debt to buy the stock. So you like my point of JIT-BTO. There are a lot of questions surrounding how things are done and how they will affect the outcome. Where the benifit is ect. Today, everyone likes to talk about how fast inventory depreciates. This is probably very true. But there is one differance between today and 2 years ago. Today, a machine built 6 months ago, while now depreciated in price, is still a beeffy machine that is not obsolete and still in demand. 2 years ago, that machine may not have depreciated as far as part prices go, but its preformance had fallen by the way side rendering it obsolete. I guess I am saying the reason for the depreciation of inventory is different today than it was 2-4 years ago. If you look closely at the CPQ promotions, most of the free monitors are given away with P II machines. That tells me that the inventory is not obsolete, they just have a bunch of it. Last, In my expample I talk about an unrealistic sudden drop of orders. In the real world, it is possible for the same thing to happen only much more subtlely and over a longer time period. Jim