Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: stock bull who wrote (56853)	8/7/1998 1:17:00 AM
From: rudedog	Read Replies (1) \| Respond to of 176387

S B - I think the two are moving closer to each others market segment I disagree with this, looking at what's happening in the market, although reading the PR, one might come to this conclusion. CPQ is currently weakest in the segment where they built the company - the commercial desktop space. They had developed a high-cost model due to their channel distribution strategy, which had a large 'contra-revenue' component reflecting the cost of price protection for channel partners. This cost something like 10 margin points. They have significantly reduced the contra-revenue charge by cutting price protection to a few weeks and by forcing lower inventories. But there can be no doubt that the channel will still expect to make some money, and that will place CPQ at a disadvantage to Dell in this space. I believe that CPQ realized this back around 1994, and began taking steps to change their business model to a services-led full range IT provider. $13B in acquisitions later, they have nearly completed that transition. Their goal is to make the traditional PC business unimportant to their overall growth. Dell on the other hand is perfecting the model of how to succeed in the traditional PC space. Dell had developed a highly efficient distribution, manufacturing, and cash management model which is ideally suited to a business where immediate responsiveness to a range of customer configuration needs is one of the few value-add components left. I expect CPQ to defend this business segment by moving as close to Dell's model as they can within their business constraints. But I think they intend to grow at the expense of IBM, SUN and HP, and lose as little as possible to Dell, while at the same time making those inevitable losses as unimportant as possible. That strategy should be a successful one for CPQ, but it does imply that DELL and CPQ will increasingly be on different paths with very different dynamics. I also agree that at the moment CPQ is a better investment than Dell, for the reasons that you state, and my portfolio reflects that belief. On a shares basis I am holding about 6 times as much CPQ as Dell. 8 months ago, that was also true on a dollars basis, but now the ratio is about 2 to 1. That says a lot about where the two stocks have gone in that time. CPQ only recently got above the point it was at in early December. I also believe that Dell will continue to be a solid investment for at least the next 12 to 18 months. Based on my assessment of their management team I would expect that trend to continue but I will be watching closely to see how they manage the inevitable transition from feisty smaller player to dominant player. Although I happen to think that CPQ will do a lot better over that same time frame, I have not decided to change my holdings on either stock.