Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Geoff Nunn who wrote (47518)	6/14/1998 1:24:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

Good morning Geoff, I thought your arguments were exactly on target. One of the problems some people investors have is that they are technically sophisticated (from an engineering or electronics point of view) but lack even a rudimentary understanding of economics or finance. The surprise is that many high-tech businesses unfortunately suffer from the same short coming. Arguing that declining ASPs per force is a death blow to the industry (while ignoring elasticity) is one such case. Another is the failure to truly understand the concept of "value added" by insisting that it must be something unique, and finally the failure to appreciate the fact that barriers to entry take a multiplicity of forms (not just proprietary technology). Again, thanks for your well-informed, clearly reasoned posts. TTFN, CTC

To: Geoff Nunn who wrote (47518)	6/14/1998 3:35:00 PM
From: Bilow	Read Replies (1) \| Respond to of 176387

Hi Geoff Nunn; Regarding what happened in the super computer industry. I was working at SCS in 1986, which made a mini-super computer called the SCS-40. It did about 40million 64-bit floating point operations per second, peak. It cost about $1MM. The ratio commonly known as bang/buck was therefore about 40flops/$-sec. (Flops = floating point operations.) Cray sold a super computer that did about 10flops/$-sec. Their machines cost about $10MM each, and ran at a rate of about 100million 64-bit floating operations per second. Our machines were software compatible with theirs. Management figured we could steal market share from them cause our machines gave 4 times as much bang/ buck. This is a large enough amount that it gets people interested. Most engineers don't bother to look much at the industry they are in, instead they just keep their noses to the keyboard and design what they are told. But something happened that forced us all to look at the market we were in. The company brought in Unix workstations (made by Intergraph), to design the successor to the SCS-40. The workstations cost about $25,000 each, and could do around 10million floating operations per second. They used a processor from Fairchild. Naturally we computed the bang/buck, and it turned out that the workstations we were using gave about 400flops/$-sec. When we looked at how much the computer we were designing cost, and how fast it would perform, we knew we were doomed. The integration wave that started with the Intel 4004 was going to sweep through our section of the market in a year or two, many years after it had swept through the low end computer market. Sure there was some elasticity in demand. But not enough to counteract a 10x decrease in price. The PC industry is in the same fix. Sure there is some elasticity in price, but nowhere near enough to save the company's butts that are in the business. So give me the figure. How many more computers can you sell given that the price drops 10x? Everybody I know who might possibly want a computer already has it. So maybe 2 or 3x as many? That leaves the industry with a 3 to 5x reduction in revenue. Dead meat. And it doesn't take a degree in accounting, marketting, or communications to figure that out. The consequences are obvious to those who understand the technology, and have any sort of clue how markets work. But if you don't understand the technology, then the fall in ASPs is not obvious. Mumbling about "value added" isn't going to help either. Walmart runs on mighty thin margins, and so will the PC industry once it goes commodity. I really don't want to have to argue against the quaint notion that the PC industry can expect people to kindly purchase more expensive machines than they really need, thereby keeping the box makers in business. This has never happened in any industry before, and I don't see it happening over the next few years. People just aren't that stupid, and an investor certainly doesn't want to rely on that sort of logic. People are still going to be in denial about ASPs. The guys who said PC prices couldn't go lower than $600 are already off by a factor of 2. The guys who will say that $300 is the lowest possible price will be shown to be wrong later. Look for a price about $50 more than a low-end TV set, and watch for monitor prices to drop drastically when industry gears up for digital TV. -- Carl

To: Geoff Nunn who wrote (47518)	6/14/1998 11:19:00 PM
From: Craig Lieberman	Read Replies (2) \| Respond to of 176387

Maybe we can put an end to the ASP argument once and for all. Can somebody chart DELL's ASP over the last 3 or 4 years by quarter. Can we show the corresponding cost per system and profit. Can we show the percent change in ASP decline. If the component prices fall faster than the systems prices, then you maintain margin. I believe that DELL offers a full line of systems. Their online catalog is filled with systems from low end to high end. If the DELL business is being forced into the low end for a larger and larger percentage of their business, then we would see that play out in their sales percentages of system types. However, isn't their number of higher end systems and servers increasing? Therefore, their own customers (the more sophisticated and business shoppers), not joe-average 1st time computer buyer, are ordering the higher end systems. They did do so, they continue to do so. When I see a decline in the number of systems that DELL ships to business and number of servers, then I would consider that a sign that the company is starting on the down slope to consumer-only low end systems. I could have bought a low end system. I know better. They become 'door stops' (obsolete computing platform) too soon. In my opinion, most 486 systems are door-stops now. The Pentiums have no more than a year left. The Pentium II systems are 3 years from that category now. Basically, we should be looking at the installed base as our customer base for DELL. As the 486 systems are retired, most people are looking for a significant upgrade. The more systems installed, the larger the customer base. All of these 1st time buyers with Pentium 266 with MMX systems will be looking for the Pentium III systems in 1-2 years. For that reason and others, I am a DELL long. Craig