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

To: jim kelley who wrote (44525)	5/23/1998 7:46:00 PM
From: rudedog	Read Replies (1) \| Respond to of 176388

Jim - Dell certainly has the economics to win in the low end commercial space - as meat has pointed out, they already have good offerings there. The consumer space is a different story. The advantages of the JIT model and direct sales are almost non-existent here. These consumer machines are much more targeted at 'ranges' of use and are much more likely to be purchased at a store as opposed to direct, much like consumer electronics. Look at CPQ's presario line, which has arguably been the most successful consumer line ever. These products are targeted at a specific market window, usually only 120 days long. . ALL of the systems to hit a given market window are produced in a single production run, which is an even more efficient way to manufacture than even Dell's model. Virtually all of the systems are sold before they leave the dock at CPQ. Presario has had a backlog against orders of 6 to 8 weeks pretty much continuously since the initial launch in 1995. If the backlog is not filled when the production run ends, then CPQ fills with the 'replacement' product. This model is more like what Sony does with consumer electronics than what CPQ does in the rest of its business. There is no channel stuffing here, no old inventory, no obsolete product. New products enter the channel even before the demand for the old ones has started to drop. There is also a carefully planned movement of the older technology base to a lower price point, so that with each new seasonal line, the same dollar buys more system, and the same system is lower in price, in a very visible and segmented way. But this does not mean that the old models are sold at a lower price - the older technology drifts into a 'new' lower cost product. This is an area that was so different from CPQ's other businesses that it was set up as a completely separate 'company within a company' with its own design, manufacturing, and distribution. Looked at as a separate company, CPQ's consumer business is very successful, makes great use of capital, has spectacular growth and easily predicted inventory turns. This is a fiercely competitive business where CPQ is currently kicking IBM and HP's butts. As Paul has pointed out, this might not be the best way for Dell to use its MFG and capital resources, and I think they have been wise not to go there.