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To: Craig Lieberman who wrote (47597)	6/14/1998 11:33:00 PM
From: rudedog	Respond to of 176388

Craig - I am using your post as a convenient place to jump into the ASP discussion, so don't take this personally. If the component prices fall faster than the systems prices, then you maintain margin. You don't need to go through all of the pain of this analysis, since we already know the GM by percent across the board. If memory serves me, (and if it doesn't I know my noble colleagues will not hesitate to correct me) - Dell's gross margins have declined by about a point over three years, but are actually up in the last fiscal year and are currently about 22.5%. ASPs are an OUTPUT!!! they are the result at the end of the day of dividing revenue by units sold. It doesn't matter what happens to ASPs if the overall revenue and margin are maintained. In fact it doesn't matter what happens to ASPs if the overall revenue and margin DECLINE! It's the gross margin, net and total revenue that drive earnings. ASPs don't drive anything.

To: Craig Lieberman who wrote (47597)	6/15/1998 10:47:00 AM
From: Geoff Nunn	Read Replies (3) \| Respond to of 176388

Craig, The argument about ASP is not so much whether it is trending downwards, but whether it hurts boxmakers if it is. Folks like Carl, Techie and others seem to think ASP drives boxmaker profits, although when I have asked them to be more explicit about the relationship between ASP and profit, they have not responded. So we don't know their model, although I believe we do have a few clues. The most naive formulation of it assumes anything that drives down ASP - even declining component prices - is bad for boxmakers. By this logic, Ford is hurt when sheet metal prices decline, and Exxon benefits when Saudia Arabia hikes the price of oil. You can see how anyone who wants to argue with them on economic issues has his work cut out. The Carl-Techie hypothesis is built on a misconception about how market prices are determined. One error is in failing to recognize that prices, in the long run, must be adequate to cover costs of production. Otherwise firms will exit the industry. If firms quit because of losses, this would reduce supply and cause prices to rise. Eventually, prices must be high enough to compensate box makers for the necessary services they provide. In the C-I view of the world little of this matters. PCs somehow get produced anyway (and profusely apparently) as mysterious forces inexorably drive prices lower and lower. I suppose the producers at this point are firms on Mars where perhaps laws of economics don't apply. I believe there are other objections that can be raised about the ASP concern but I have mentioned them previously. Quite frankly, it's difficult to argue with folks who give utterly no ground when their arguments are shown to be nonsense, but merely return only to continue repeating them. Perhaps they are sincere in their statements, perhaps not. I have better things to do than to argue further with them trying to find out. Geoff