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

To: rudedog who wrote (1852)	9/5/1998 3:06:00 PM
From: jim kelley	Read Replies (1) \| Respond to of 2578

Dog, Forecasting demand is a huge problem for companies like CPQ which use an outdated batch, build to forecast, manufacturing system. There can be no doubt that this is the case for CPQ in view of the fact that their profits have been reduced to close to zero by their inability to forecast true demand for their products this year and last year. To claim that CPQ's manufacturing system is more efficient than DELL's is ludicrous at best. I seriously doubt that CPQ derives any advantage from issuing large batch orders for INTC parts quarterly and then screwing up and reducing the orders abruptly for the next few quarters. DELL must be seem like a real blessing to the INTC manufacturing people because its gives INTC weekly updates on its inventory requirements. This helps INTC to realistically plan its production and reduces the terrible expenses of starting up and shutting down manufacturing lines abruptly. So I think your analysis of the DELL JIT value to INTC is full of baloney. I would bet that DELL is highly valued by the INTC manufacturing managers and that this is reflected in reduced component pricing for DELL. It is curious that you think that DELL should copy CPQ's inefficient and outdated manufacturing methods. All the while, CPQ is trying to reduce DELL's manufacturing edge by out sourcing its manufacturing to companies like TECD which are being run by former DELL manufacturing executives. If they thought that their manufacturing was the most efficient they would not be outsourcing and trying to copy DELL! Respectfully yours, Jim Kelley

To: rudedog who wrote (1852)	9/5/1998 3:55:00 PM
From: Bilow	Respond to of 2578

Hi rudedog; It is pretty clear that trying to explain the details of how inventory size changes prices is kind of rough. So how's about an analogy? Warehouse space == gas tank. Maximum inventory is sort of like how big your gas tank is. Big gas tanks are nice, cause you can buy gas at the cheapest times, and then wait until you get another chance to fill up at a cheap supplier. This is particularly true if you are buying gas from more than one supplier... But having a big gas tank has some disadvantages. First, a big tank weighs more and so reduces MPG, and is more expensive to buy, even if you never fill it up. In addition, if you are in the habit of always filling it up, you are likely to have more money invested in gasoline than you might really need. Small tanks are cheaper, but you are more likely to run out of gas due to circumstances beyond your control. And you cannot take advantage of pricing as easily. In addition, the gas stations give you a slight discount for buying more gas at a time. Of course, if the price of gas is dropping at a very high rate, having a full tank will be more expensive because of loss of value in your unused gasoline. Hope this helps. -- Carl

To: rudedog who wrote (1852)	9/5/1998 4:17:00 PM
From: Geoff Nunn	Read Replies (1) \| Respond to of 2578

Rudedog - If CPQ knows in advance when CPU prices will fall, why would they get caught holding big inventories of CPUs right before a price drop, as has been claimed by Jim Kelley? In fact CPQ drives their CPU inventory as low as possible before a price drop. Good question. I would like to hear Jim speak to this, but let me suggest an answer. If CPQ lowers its inventory only because prices are about to drop, this would create disruption for both CPQ and Intel. CPQ doesn't want to run dangerously low on inventory, and Intel presumably wants to smooth its own inventory. A stop and go buying pattern by CPQ would hinder both objectives. I can't imagine why Intel would space price reductions far enough apart to allow this to occur. As you know, Intel's price roadmap applies only to "small" customers, not to CPQ or Dell whose prices aren't made public. My guess is that the prices large customers like CPQ pay are adjusted extremely frequently - perhaps even daily! Frequent price reductions are in the interest of both Intel and CPQ. I would think this would be enough to discourage CPQ from engaging in disruptive buying patterns. Let's say CPQ could get an absolutely great deal by buying huge volumes of only 2 chips - say 450 Xeons and 333 Celerons. Lets say they cut a deal that gives them a 50% advantage over Dell in CPU costs on these chips. This would clearly, unmistakably give CPQ a much lower cost structure. Dell, on the other hand, would have the ability to flexibly adjust processor mix to meet customer needs and would probably sell more computers overall, though CPQ would sell more of the 2 particular models they had under this deal. So in this scenario, Dell would willingly chose to buy CPUs at twice CPQ's price. It would be the smart thing for them to do. No way would Dell do as you suggest! There is something you're overlooking. Dell has control over its retail prices , and these prices affect the choices its customers make. The tastes and preferences of Dell customers are not set in concrete. To induce customers to buy more of one system and fewer of another all Dell must do is revise its prices. In the scenario you mention, Dell's correct strategy would be to buy the Xeons and the Celerons, pay the same price for them as CPQ, and undercut CPQ at retail. The other chips available from Intel wouldn't be worth the money. Who would buy them!? Geoff