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Technology Stocks : DELL Bear Thread -- Ignore unavailable to you. Want to Upgrade?

To: Lucretius who wrote (1433)	8/4/1998 12:59:00 PM
From: JRI	Read Replies (2) \| Respond to of 2578

Luke- PC's are not a commodity: First of all, many industries exhibits a few or some of the characteristics that industries (producing commodities do). Exhibiting some of the characteristics of a "commodity" does not make your product (or industry) a commodity. When considering whether or not a particular item is a commodity, it is much more relevant to look at the characteristics of the MARKETPLACE (for those particular goods/services) to determine whether or not an item is a commodity, versus, what I think you (and many) do with PC's, that is, to look at production aspects only. Sure, it is theoretically possible that most people could learn to assemble their own computer. But most do not and will not. It is theoretically possible that other firms could build assembly plants, use the direct method, and sell computers like Dell does. Some have tried. Some are trying. (If it is so easy, why is Dell the only PC company making money hand over fist?.....)...There is pricing pressures in the PC industry.....Do these characteristics make PC's a commodity. No..... Let's look at branding. In the MARKETPLACE for a commodity, like sugar, wheat, or closer to home, gasoline...there is little or no branding....no one cares about the company that produces it, their characteristics etc. (for the most part). (There does exist a minimum level of quality that all companies must meet who sell a particular commodity)....We all buy gas at 7-11's from time to time....when was the last time you asked the clerk...."who made this gasoline?" You didn't because, you don't care........it is a commodity.........you go buy gas because the station is on the way home from work, or close to you when you are about to run out......I know very few people who "prefer" EXXON to BP. It is all the same. It is all a commodity (in the EYES OF THE CONSUMER, the PURCHASER) Consumer loyalty is also of little relevance for commodities. If someone surveyed most people concerning the commodities that they purchase, the survey would not exhibit strong consumer loyalty towards any one brand. If someone asked me, do you plan to continue to purchase gas at EXXON, I would say, "as long as I keep running out of gas in front of their location and/or they are on the way home"....I wouldn't drive two blocks to go to EXXON over BP. With PC's, looking from the consumer's perspective (THE MARKETPLACE), the brand is important. You care about the quality of the PC....you take your time....one shops! More importantly, Dell's primary marketplace is the corporate market and sophisticated computer users....for these purchasers, issues of service, reliability, TCO, partnering are all important....When was the last time you cared about a relationship with EXXON? Look at PC Magazine this past June. Look at the customer service/reliability surveys..There are huge discrepancies between brands....Some rated "A" (like Dell) some rated "F".........This does not happen with commodities.....Quality differences (and, more importantly, PERCEIVED differences of quality) are small or non-existent. With PC's, one also must remember that there are different market segments that exhibit differing market characteristics....In the very low-end of the market, sub-1000's, the products being sold are more "commoditized" (ie., price becoming the only consideration for the PURCHASER) than in the sophisticated consumer market or the corporate market......Even in sub-1000's, it would be wrong to call PC's "commodities"....For example, I recently has a 45 minute discussion with a friend of mine about which sub-1000 PC to buy....He cared about quality, service, reliability, reputation of the company........ (Note how Dell chooses to play in the, what I will call, least "commoditized" industry segments.......HMMM....I wonder why?) We could continue this discussion further, but on the issue of branding/customer loyalty alone, it is clear that the PC industry is not a pure commodity, or anywhere close to it..........with the consolidation that is occuring, the marketplace for PC's will, most likely, exhibit fewer characteristics of being a commodity than more..