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

To: Chuzzlewit who wrote (1952)	9/24/1998 8:31:00 PM
From: Boplicity	Read Replies (1) \| Respond to of 2578

Hey Chuzz, You have any comments about the LTC bail out? Greg

To: Chuzzlewit who wrote (1952)	9/25/1998 10:04:00 AM
From: Geoff Nunn	Read Replies (3) \| Respond to of 2578

Hi Chuz, Good points. I like the analogy you draw between vertically integrated firms and the conglomerates in the 60's. The conglomerates were costly to put together yet usually provided few if any benefits. (the diversification argument, as you point out, was spurious) Equally bad, when the performance of an acquiree failed to measure up, as was frequently the case, aggregative accounting was often used to disguise the problems. I don't believe ATT, for example, ever reported separate profit/loss statements for NCR. Lack of transparency in a division's profits, of course, weakens its incentive to hold down costs and operate efficiently. BTW, wouldn't the pc divisions of IBM and HP be more efficient if separate profit/loss statements were reported? The answer presumably is yes, although to the extent that either firm is vertically integrated, manufacturing its own pc components, there would remain the transfer pricing problem with its own special distortions! In the eighties, a wave of de-conglomeration began. This process of undoing the various "monuments to someone's ego" as Sir James Goldsmith called them, helped boost economic efficiency, The fact that the stock market rose sharply during the period suggests that this was a very productive thing entrepreneurally to do...perhaps just as productive as the creation of new ventures. Andrew Kessler seems to be suggesting in Forbes that a similar wave of vertical de-integration is now occurring. To appreaciate why this may be happening, one need look no further than at IBM. Correct me if I'm wrong, in its pc business IBM used to manufacture its own disk drives, modems, printers, monitors, memory chips, mother boards, and OS software. This was in the 1980s. IBM stock has performed so well recently, it is easy to forget what a dog it was in the eighties, when it was second only to Woolworth as the worst performing of the 30 Dow stocks. IBM's recent success clearly is due in part to the vertical de-integration that it is undergoing. (despite Carl's claims to the contrary). We need to work on Carl to get him to read M. Dell's interview in last April's HBR. :o) Geoff