Hi Mitchell Ryan; You are quite right about the quality problems
with the US auto makers.
Perhaps the US makers refused to compete in the small car
market because of those quality problems. For whatever
reason, they did not compete, and they did lose market
share.
DELL does not have a quality problem that prevents them
from competing in the low end, as far as I know. They are
unable to compete in the low end for other reasons.
I tend to agree with you that those box makers who do compete
in the low end get shafted cause margins are slim and
support requirements are high (support requirements are
high relative to the gross profit margins, I suppose.) My point
is not that the low end is a healthy environment. My point is
that all the box makers are going to be competing in the low
end around 3 years from now. Most of the high end market
is going to dry up. That part which is left will still have pretty
good margins, but it will be a much smaller market over all,
and there will therefore be room for a much smaller number
of players in it. The ones to bet on (barely profitable) survival
in the high end market, are those at the highest end of that
market.
Market segment collapse is something that has repeatedly
happened to the various parts of the computer industry. This
is a normal part of the evolution of the computer industry.
Like the biological theory of punctuated equilibrium, the
computer industry has stable market segments that last a
decade or two. Then those segments are eliminated in a
sudden burst of cost reduction. This is not the continuous
cost reduction that you see in a normal market segment, but
a really large change in pricing.
One of the things you come to realize from designing equipment
to be manufactured in high volume, is how important small
price differences are. Engineers generally choose the cheapest
way of achieving a given requirement. A small change in price
can cause a lot of engineers to suddenly switch choices. When
this happens, the company supplying the newly popular solution
starts to have volume manufacturing advantages, and their
cost advantage increases. At first, systems on a chip will be
(are) more expensive. But pricing depends on volume, and
volume (i.e. numbers of units sold) depends on how low pricing
is. When a company first gets a price advantage, their volume
skyrockets, further reducing their costs. This is why
revolutionary design changes cause discontinuous pricing
changes.
Staying on the top of the heap in the computer industry is
not an easy thing to do. It takes a lot of guts to realize that
your industry is about to downsize. Nobody who works at
a computer maker wants to believe that, and humans, by and
large, believe only what they desire to believe. This is a
hard tendency for management to resist, especially as their
subordinates are much more likely to tell them what they
believe they want to hear, rather than the tough truth.
Did IBM ignore the microcomputer market because they knew
that the development of that market would inevitably destroy
their high margins? At the time, this was believed in the
industry. That is, that IBM couldn't develop micros because
of the competition with all their higher price, higher margin
products.
IBM survived not getting into the micro business on the ground
floor, and, in fact, were able to create the standard clone,
even though they were quite late. DELL doesn't have that
kind of market clout, and in IBM's case, the PC standards
ran away from them anyway.
Now the industry has a standard computer, so there is no
problem with a plethora of incompatible machines. This
means that the competition is strictly one of cost.
-- Carl
P.S. My data shows Ford growing at a much faster rate than
a lot of semiconductor houses, (like NSM, TXN, etc., but
certainly not INTC) over the last 20 years, in terms of sales
per share. How fast has IBM grown compared to Ford?
I should look this up. In any case, past growth rates are
not why we buy stocks, but instead, we have to guess
what future growth rates will be. DELL, like everything else
on this planet, will die someday. My prediction for that
demise (or at least very tough times) is far enough in the
future that I am not currently short the stock.
P.P.S. When DELL broke a new high today, I bought it as a
daytrade, as my observation has been that DELL usually
punches through its new all time highs with good follow through.
(Though it usually jigs back a quarter or so before making
the final break.) My suspicion is that this is due to amatuers
buying the new high, and my ability to profit from it comes
from being faster. (I'm directly connected to the Nasdaq
computers.)
P.P.P.S. The secondary market was absolutely horrible
today. If this is the best we can do for a rally the week
after an intraday 280 point Dow loser, I would suggest that
the large cap stocks are probably going to follow the small
cap ones into the toilet. Of course, since I daytrade, I will
not normally leave a position open overnight.
-- Carl |
