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

To: Bilow who wrote (46629)	6/8/1998 12:45:00 PM
From: jim kelley	Read Replies (1) \| Respond to of 176387

BILOW, IMO: The potential applications of computers are limitless. The potential enhancements to todays computers are limitless. In fact, the development of computer technology and applications is limited only by the scarcity of qualified people and capital devoted to the task. Your narrow focus on the the commoditization of a marketplace does not take into account the ongoing roles of process, software and hardware innovation that is always taking place. Your view is essentially a static view of a huge, dynamic, constantly changing marketplace. The key ingredient in the long and short term prospects of your technology investments is the company's management. Are they able to identify and manage the company to make profitable product transitions in this dynamic market? DELL is one of the companies that has demonstrated and continues to demonstrate the capacity of its management to lead in the delivery of products and services in the market. The bottom feeders will be selling yesterday's commodities. The companies that add value to their products and services at the leading edge of the market will not be dealing in commodities. Regards, Jim Kelley

To: Bilow who wrote (46629)	6/8/1998 1:19:00 PM
From: Geoff Nunn	Read Replies (3) \| Respond to of 176387

Hi Carl, Thanks for you reply. I found it good reading, and think you make a great many interesting points. Let me also say it is a pleasure to read from a technologist who can write in simple, plain English. On the pivotal issues you raise involving economics though, I find myself in disagreement -- although I concede that under the right circumstances chip integration could pose a major threat to Dell. However, I think for the most part your discussion rests on some faulty economic premises. These are: 1. High priced PCs are more profitable than low priced PCs. 2. A decline in ASP is bad for boxmakers such as Dell. 3. If PCs become a commodity, this will hurt Dell. 4. If total spending on PCs declines, this will hurt boxmakers such as Dell. All of these premises stem from a fundamental misconception about what determines profit. Profit is NOT determined by ASP. Dell earns a profit because it creates wealth, contributing a certain amount of value added to the creation of PCs. Dell performs the necessary role of designing, assembling, marketing, distributing and servicing PCs. Actually Dell's creative function is far more extensive than this, involving complex integration of these tasks with commercial end users, as anyone who read the HBR interview with Michael Dell knows. Unless chip integration makes one or more of these various and complex functions obsolete, I don't see how Dell would be harmed. To see the fallacy of ASP, imagine what would happen if the prices of all pc components were to fall to zero. Let's assume components are so abundant they are a free good. ASP would of course fall, but would this be bad for Dell? Of course not! This would be great for Dell, as I suggested in a post yesterday on the beneficial effects of falling chip prices. As a general rule, the price of any good produced under competitive conditions in the long run will be equal to the cost of producing it.(zero-profit theorem) This rule does not apply at the moment to servers and work stations, which are fledging segments of the market, but it does seem to apply to desktop PCs, which are much more competitively produced. As more firms enter the production of workstations and servers -- and existing firms expand, the zero-profit rule may soon apply here too. Anyway, the price of a pc is determined by: 1. cost of components + valued added by boxmaker = total cost 2. total cost = price (assuming competitive conditions) Now, if we assume components are free, the price will simply be the value added by the boxmaker. This is the absolute lowest the price can go. If the price falls below that, boxmakers will lose money and some can be expected to exit the industry. This will cause the price to rise until remaining boxmakers are adequately compensated for the services they provide. I would agree with you that PCs are a commodity. However, the manufacture and distribution of PCs is not. Dell is more efficient than its competitors, and is being rewarded for its innovation. Sam Walton thrived in a business which everyone thought was a commodity, and by innovating a more efficient distribution of goods, produced one of America's greatest fortunes. The real issue for dell is not average selling price. If Dell rests on its laurels, rivals will emulate its methods and profits will fall. The real test for Dell is whether it can continue to innovate. If it does, it will continue to create wealth and rake in profits. Its latest goal is to reduce inventory turns from 8 to 4 days. Can it do it? Now that's a real issue. I don't know what you think, but Dell shareholders have a lot of confidence in Dell's management team. We are betting it can. Good investing! Geoff