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

To: Tumbleweed who wrote (1678)	8/29/1998 11:59:00 PM
From: Bilow	Respond to of 2578

Hi Joe Cittern; Yeah, DELL does buy in bulk. I was trying to describe the loss of DELL's current cost advantage in having lower inventory. Please allow me to try again, with a slight edit to my original paragraph. Was: DELL's big profit advantage is in a regime of quick falling component prices. The advantage they posses is that of having small inventory, and therefore small losses in inventory value. I expect this regime to last far longer and prices to fall far deeper than most people. For the short term, this is bullish for DELL. But when the regime stabilizes, DELL will be at a disadvantage to those who buy in bulk. Ought to have been: DELL's big profit advantage is in a regime of quick falling component prices. The advantage they posses is that of having small inventory, and therefore small losses in inventory value. I expect this regime to last far longer and prices to fall far deeper than most people. For the short term, this is bullish for DELL. But when the regime stabilizes, DELL will be at a disadvantage compared to those who inventory in bulk. Actually, I can show that DELL's advantage will decrease, but not by how much. It is my expectation that this will but DELL at a disadvantage. The big advantage goes to the companies that are vertically integrated rather than "virtually" integrated. Like all other aspects of production, inventory control is a problem of balancing conflicting expenses. Under one set of conditions, it is advantageous to have average inventory set at one level. But when things change, the optimal inventory for a business will change also. In particular, if a business carried no inventory, they wouldn't be able to make the product. So the inventory level is a parameter that must be balanced against conflicting demands, just like everything else in engineering. So lets look more carefully at the changes I am predicting, and what effect those changes will have on the optimal inventory for a company. One of the costs of large inventory is the capital required to pay for it. But I predict that parts costs will decrease by a huge amount, reducing this disadvantage of large inventory. Another cost of large inventory is the space required to store it. But I predict that the high level of integration will reduce sizes of computers substantially, reducing the disadvantage. A very recent cost of large inventory is the fact that prices of components have been dropping rapidly. But I predict that eventually the cost of components will stabilize (at a very low level). Similar to the above is the fact that older inventory can become less valuable due to the high rate of technological change. But I predict that once most of the consumers requirements in a computer are met (ease of use, good sound, good video, etc.) these rates of change will slow down to the rates enjoyed by other consumer mass marketables, (like TVs, VCRs, CD players, etc.) When the rate of change slows down, competition in features is reduced and competition in price becomes dominant. Note that PC on a chip implies that the box makers will be less able to compete on features or quality, and will thus be forced to compete on price. The box makers are already complaining about this, as shown in some of the links I have posted supporting my case on this thread. They know where the market is taking them, and they do not want to go there. -- Carl