To: Chuzzlewit who wrote (57420 ) 8/11/1998 8:43:00 AM From: rudedog Respond to
Chuz - Rudedog made a comment in an earlier post that needs correcting. He said that Compaq could manufacture computers -- particularly servers -- at a lower cost than Dell. I'm sorry, but there is no data to substantiate that claim. Compaq can undoubted purchase parts and components at lower cost, but Compaq's higher inventory carrying costs more than make up for this. On a percentage basis it seems to me that Dell's COGS is lower than Compaq's. Considering the fact that Compaq has relatively high margined server offerings seems to me to be a juicy target for Dell, given their obvious cost advantages. CPQ can subsidize portions of the hardware side of this plan through service revenues, which has been a staple of high end account control for at least the last 30 years. CPQ can also put Dell into a 2-front battle by expanding their low end offerings. This creates price pressure on the lower end of Dell's lines (as it has already started to do). CPQ has already demonstrated their ability to make money in that space, so this is not a loss leader for them, but it might be for Dell. CPQ has not done a sub-1K server, but I have heard rumblings that they plan on doing direct sales of low end servers. It would not be much of a stretch for them to create server offerings that looks a lot like Dell's, at a lower price point, to deny Dell sales in the server markets where the service component is not valued as greatly.
