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

To: Bilow who wrote (47537)	6/14/1998 4:40:00 PM
From: Chuzzlewit	Respond to of 176387

Thanks for a very interesting post Bilow. I think part of the misunderstanding is that you view technology companies as fundamentally different than other companies. In my view, except for some issues such as barriers to entry and risk, they really are no different than any other business. Let's think about them in the same terms as supermarkets. And lets not toss around that term commodity as if it were a pejorative. Dell has in effect capitalized on that "commoditized" computer by doing exactly what supermarkets do -- it turns its inventory quickly. And it runs a very efficient virtual store. There is nothing negative in that. These are the very factors that spelled the demise of the mom and pop groceries of the forties. Now you may wish to bemoan the loss off cachet, but that is an aesthetic issue, not an economic issue. So compare that commoditized image with that of a jewelry store. Here you have the opposite extreme. This is a business with huge gross margins and very low inventory turns. But there is nothing innately superior to this way of doing business. And that's what's wrong with trying to apply the lessons of the supercomputer to the PC market. The supercomputer was a specialty item with relatively inelastic demand characteristics. Look at the picture from the aggregate point of view. It seems to me that the question you need to ask yourself is why are the ASPs dropping. If there were dropping because demand for product were dropping I would agree that there is cause for worry. But that isn't the case. Demand is increasing. ASPs have been dropping because component prices have allowed them to drop (not caused them to drop). When I say "allowed" I mean to imply that management is or at least ought to be a profit maximizer. So it assesses the demand and adjusts prices so that it maximizes profits. In other words, a changing cost structure inevitably results in a shift in the supply curve. TTFN, CTC