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

To: rudedog who wrote (48812)	6/23/1998 8:22:00 PM
From: Geoff Nunn	Read Replies (3) \| Respond to of 176387

Rudedog, I would suggest that CPQ is going after market share. How else does one explain CPQ's 37% growth in worldwide PC shipments last year? It's no wonder they've been having problems with "bloat." The PC industry hasn't experienced profitability in recent years to warrant the capital outlays CPQ has been making. (with the notable exception of Dell). Business Week ran an article several years ago which referred to the "profitless prosperity" in the industry. What it said essentially is that everyone was selling a lot of product but no one was making much money. Why is CPQ making large new investments in assembly plants if not for market share? I would think we can apply the duck test here -- you know, if it walks like a duck, sounds like a duck ...

To: rudedog who wrote (48812)	6/23/1998 10:05:00 PM
From: Meathead	Read Replies (1) \| Respond to of 176387

Re: At a street price of $799, that allows a target margin of 30% and 15% for the channel. No mystery here, it makes money. Rude, In my mind, COGS and target margin "is" the mystery. I agree with your assessment of these systems from a technical standpoint. I also believe that no company enters a market segment to gain market share and break even or loose money. So it is safe to assume that in a perfect world, CPQ had profit margins in mind. However, 30% is hard to swallow. Dell's high end systems don't command a 30% margin. My guess would be margins were targeted for ~15% with ~0% or enough to cover costs for the retail channel who make money on peripheral sales (software, disks, mouse pads etc.), that's their incentive. I believe that I read in CRN months ago that CompUSA said they indeed didn't make anything on these systems. It's impossible to say what their COGS is but $450 sounds a little low... especially for a year ago when these systems were introduced. Factor in channel depreciation (they slashed the 166Mhz systems to $699 to drop the 200Mhz to $799 if I remember correctly) and your margins erode further. MEATHEAD

To: rudedog who wrote (48812)	6/23/1998 10:07:00 PM
From: Chuzzlewit	Read Replies (3) \| Respond to of 176387

Rudy, I agree with your general analysis but I strongly disagree with your assessment of sub 1K retail market. You said At a street price of $799, that allows a target margin of 30% and 15% for the channel. No mystery here, it makes money. I think this is incorrect. The amount you list for the channel is much too low. The reason that 15% may seem reasonable is that retailers and resellers don't explicitly break out their cost of product in COGS. Included in COGS is rent, salesmen's commissions, overheads etc. I don't know exactly what the markups are (as opposed to the COGS) but I would be surprised if they weren't at least 35%. That would imply a cost of product of around 74% of the selling price for each channel member. In this case there are two, so that would imply that Compaq's out of the door price for that $800 machine is around $438. Even if your numbers are correct and the target margin for the retailer is 30%, then his cost was %560, and the cost to the reseller (with a margin of 15%) was $476. Neglecting vfo and ffo we would have a margin of only around 6%. Then the second issue is that Compaq's cost for the unit is more than the cost of components and assembly. It also most include fully absorbed overheads and depreciation, coop advertising etc. The bottom line is that I don't see for the life of me how they make money on the product. I think that Jim Kelley was right on target when opined that what they were doing was fighting for shelf space with loss leaders. This kind of thing is done all the time in consumer merchandising, so it shouldn't be surprising to find Compaq trying it here. It may be new to computers, but its old hat to retailers. TTFN, CTC