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

To: WBC who wrote (1677)	8/29/1998 10:31:00 PM
From: Bilow	Read Replies (2) \| Respond to of 2578

Hi WBC; What a week of trading! Sorry for the delay replying to your comments on DELL avoiding selling low end machines... The analogy with the car industry is flawed. Automobiles are much, much, much harder to manufacture than PC boxes. Consequently, quality control issues are a lot harder to solve. The worst thing about cars is the huge number of parts they have. Lets think about this... Which car is more likely to be in the shop? One with a 12 cylinder engine, or one with a 4 cylinder engine? Hmmm... There is a basic engineering principle at work here, and it is to DELL's disadvantage. Every engineer knows that if you build a product out of 1000 parts, each with an AQL of 0.05%, at least 60% of your product will work (ignoring assembly problems...) With 2000 parts, and the same AQL, you are down to 36%. It is only natural that products having fewer parts are easier to hold to high quality levels. The calculations above are simply: (1.0 - 0.0005)^1000 and (1.0 - 0.0005)^2000. Incidentally, the same equations show why the defect rate goes up exponentially for very large chips. This causes the silicon costs of excessively large chips to be greater than their proportional area. The limitation is one of manufacturing, and is constantly being improved. But I am getting off topic. In other words, in a few years, you will be seeing the quality awards going to the products in the sub $500 price levels. Those machines will have fewer problems out of the box, and fewer problems as they age. Eventually it will be clear that people who pay more than $1500 for a computer are setting themselves up for unnecessary costs and aggravation. I've been stating that the PC industry will be going to very highly integrated computers, and that these will be extremely cheap, and they will have very little room for value added between the parts cost and the price. These are long term trends. No one can reasonably deny that personal computers are more highly integrated now than in the past. If you doubt this, go to a garage sale and buy a PC-XT. Peel off the skins. Count the number of printed circuit boards. Count the number of integrated circuits. Now do the same with a modern Pentium. There is a big difference, despite the fact that the newer machine has a lot more functions, connectors, etc., it has a lot less parts. And that big difference has already created and destroyed plenty of technology companies. As far as the prices of the new machines, we need only look to what has happened to the prices of other high tech products when their electronics became highly integrated. Capitalism always drives prices down to a small surplus over costs, where there is no monopoly. When competition is its fiercest, capitalism drives prices to a small surplus over the marginal costs, which means losses for everybody involved. -- Carl