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

To: daniel dsouza who wrote (58501)	8/16/1998 10:36:00 PM
From: R.B.Williams	Respond to of 176387

Thought this might be of interest to you even though it is a week old. Motley Fool The Personal Computer Industry The personal computer industry has provided some of the most fertile investment fields of this decade, especially since 1994. The advent of the Internet as a mass communications phenomenon, the substitu-tion of information-based capital for administrative labor, the rise of distributed computer networks in favor of mainframe-centric enter-prise computing, and the sheer increase in utility and value that PCs offer have all played a part in the dynamic growth of the industry. Annual unit growth in the 1990s has averaged in the mid-teens, with some years closer to 20%. Dataquest projects annual unit growth over the next 3 years at greater than 15%, too. However, that growth won't come within the context of rising prices, it will come hand-in-hand with annual decreases in unit prices. While it's true that annual deflation in prices will actually depress the revenues of a company that can grow its unit output at only the industry average, a PC company can stay ahead by gaining market share and improving product mix so that its average selling price (ASPs) resists deflation. This is a theme that pervades the story of the major com-panies in the PC sector. First, It's a Topline Business Annual deflation rates averaging 15% make this a tough business to get ahead in. While most Americans over the age of 25 remember more clearly the prob-lems of inflation, falling prices are the reality of business in the 1990s. General Electric CEO Jack Welch talks about this phenomenon quite often - global competition and the lack of inflation keep prices down and make for a highly competitive pricing environment across numerous industry sectors. Imagine for a moment that the selling prices of the products you manufacture go down 15% per year. A unit priced at $1.00 this year would be priced at $0.85 next year. You would have to sell 17.65% more units to maintain revenues over last year. A company with unit output increasing 30% year-over-year but with a 15% deflation in unit prices would see a 10.5% increase in revenues year-over-year. We can see, then, that having the right manufacturing, distribution, pricing, and product strategies are overwhelmingly important to a PC company. To a large extent, there are no price makers, only price takers in PCs. No single company has a large enough competitive advantage that it can charge a 30% premium over its competitors for comparable products. Coca-Cola or Campbell Soup can afford to charge such premiums, but "brand" is less impor-tant in the PC marketplace. We can't totally discount brand, though. It is important, but it's still a price-sensitive marketplace where the leaders stay in the same pricing neighborhood and match pricing moves of competitors within a short space of time. Industry Snapshot August 12, 1998, Vol. 2, No. 21 Page 1 Overview Companies in the Industry Apple Computer (Nasdaq: AAPL) Compaq Computer (NYSE: CPQ) Dell Computer (Nasdaq: DELL) Gateway 2000 Inc. (NYSE: GTW) Micron Electronics (Nasdaq: MUEI) Other PC Companies Hewlett-Packard (NYSE: HWP) IBM (NYSE: IBM) NEC Corp. (Nasdaq: NIPNY) There are some charts which I'll post if I can figure out how to copy them. RB Williams