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

To: Chuzzlewit who wrote (48842)	6/23/1998 10:26:00 PM
From: Boplicity	Read Replies (3) \| Respond to of 176387

VERY IMPORTANT PLEASE READ THIS Thread From todays FOOL evening news (hay I'm AOL share holder so I have to use the wares) snip << Intel (Nasdaq: INTC) gained $1 3/8 to $75 1/4 after Robertson Stephens said this morning that Intel's Pentium 223 and Pentium II 400 chips are on allocation, which means good things for PC makers from the high end to the low end. Morgan Stanley added today that SRAM and semiconductor component maker Taiwan Semiconductor (NSYE: TSM) is showing increased order activity >> Snip The above has me smiling from ear to ear. Greg

To: Chuzzlewit who wrote (48842)	6/24/1998 12:26:00 AM
From: rudedog	Read Replies (3) \| Respond to of 176387

Chuz - According to the admittedly limited research I have done, these margins are smaller than you suggest in the consumer market. Some Phillips and Sony products provide retailers with margins of less than 10%. By these standards the margins they make on computers look good. If you doubt this, get close to some managers at Circuit City or CompUSA. They make better margins on add-in products like tapes, disks, and other options. Salespeople are incented to 'move those options'. Service contracts are another big margin opportunity. Sales commissions on the options and service contracts may be as high as 10% but on the computers themselves they are more like 2%. Compensation drives behavior. According to a district manager for CompUSA, the approximate standard cost on the low end products for a $799 computer are retailer cost of $660, but the real numbers are affected by rebate programs and other incentives (such as the current $100 'bundle' rebate offers) which can yield a cost to CompUSA as low as perhaps $550. In this case the real price to the customer would be $699 (since he gets the rebate at time of sale) and CompUSA would realize a markup of 27%. This leaves them with pretty slim profit but that's where evidence says they are. You say In this case there are two which I don't understand. In the retail space there is in general no one between CPQ and the end retailer. This is a confusion between the consumer and commercial distribution models which Jim Kelly seems to share, but it's just not true for consumer products. CPQ sells directly to CompUSA according to the guy I spoke with. So at a production cost of $450, this would seem to yield CPQ margins of 20% in the real world case. I do not have access to production costs directly so the numbers I'm using are the '20 questions' variety but I have gotten very similar numbers from several different people so I think they are fairly accurate. 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 quite true. I am under the impression that the $450 number includes those costs but since this was information obtained in a casual setting I could easily be wrong about that. Since event pricing action is a predetermined part of the sales strategy for each product cycle and the 'list price' is usually a fiction, it looks to me like the 30% 'target' margin is like the new car sticker price - it's not a number anybody actually expects to pay. Based on the analysis above, with a fudge factor for the costs you mention, CPQ's real margins on consumer low end lines (and probably on the consumer line in general) over the product cycle are probably closer to 20% over the life of the product (typically 120 days for an event cycle). This squares with what I have heard from the consumer people at CPQ who claim margins 'in the 20% range'. I think that Jim Kelley was right on target when opined that what they were doing was fighting for shelf space with loss leaders I am convinced that Jim does not fully understand the difference between CPQ's consumer business and their commercial business especially in the inventory discussions. Why would CPQ be fighting for shelf space when they can't produce enough Presarios to meet demand and have not been able to satisfy backlog since summer of '97? One only has to go out and try to buy a Presario to understand that CPQ has no economic motivation to fight for shelf space, they can't fill the space they already have.

To: Chuzzlewit who wrote (48842)	6/24/1998 2:26:00 AM
From: jim kelley	Read Replies (3) \| Respond to of 176387

CTC, CPQ has been looking over it shoulder watching DELL gain on them for some two + years now. The competitive situation for CPQ was made more difficult by HWP announcement last year that they intended to be number 1 instead of CPQ. What HWP meant was number 1 in market share not number one in profit. Perhaps they thought that the two were equivalent positions? CPQ had to counter that thrust as best they could. It is clear that they badly wanted to be seen as a growth and share leader last year when they went to IDC and got them to declare them number 1 in market share over DELL. Like who really cares it was so close. CPQ made a big deal out of it. MD said who cares this quarter. IMO, it was a battle for perceived market share not long term sustainable profits. Dog seems to be able to take both sides of an argument. Market share is important but its not that important. CPQ does not swap obsolete inventory but it does. Price protection is being reduced and returns are being eliminated but they are not. It is quite clear that CPQ PR is designed to obfuscate their true situation. Sort of like using a smoke screen in a battlefield situation to hide troop movements. They have lost a lot of credibility with their stockholders and other potential investors with these deceptive tactics. I certainly would not wager any of my money on the accuracy of their corporate communications. Is this important to DELL? You bet!