Hi DoggyDogWorld; Thanks for replying to my post.
Regarding DELL's lack of reliance on engineering effort: DELL's direct RD&E expenses, while small compared to companies that are deeper into technology, must be a couple hundred million per year, which isn't peanuts. In addition, there are intangible benefits to being expert in the field of making personal computers, as DELL currently is. Otherwise DELL would not be able to claim that their computers are more reliable, for instance. (By the way, some of the shareholders of DELL believe that it is a high-tech company. One of them regularly posts the patents applied for by the company.)
Regarding Sales tax, California and Washington State do levy a tax on sales made by mail-order or over the internet. It's called a "use" tax, since a "sales" tax could not be collected from the seller. The buyer pays the tax. The majority of businesses, (certainly all large businesses,) will pay this tax, as they get fined if it is discovered missing in an audit. Consumers are supposed to pay it, but they generally don't and generally don't get caught.
The inventory reduction that DELL has, does reduce costs in a time of quickly changing component prices, but I predict that component prices will stabilize at very low levels. The low prices will reduce the value of inventory, thus reducing the carrying costs, and the stable prices will eliminate the loss in value due to price reductions. These changes are in the nature of what happens in a commodity market. As an example, resistors, which have been commodity parts for years, are quite cheap and do not devalue quickly, so there is no big advantage to reducing their level in inventory. True commodities, such as wheat, are often held in storage, in the expectation that they will increase in value, rather than automatically decline. Eventually computers will become true commodities, but it is quite some time in the future. It will be quite a surprise when we arrive there.
An example of an obsolete technological commodity would be the IBM Selectric typewriter, the previous ubiquitous office equivalent of the PC. If IBM produced too many of them for the market, instead of reducing prices, they could simply reduce production and sell them off slowly. Alternatively, if storage space were a problem, IBM could reduce prices on them. I am old enough to remember when they finally started to become obsolete, and the prices of used Selectrics began to drop.
Cost advantages do dominate as boxes become indistinguishable, that is why vertically integrated companies (like IBM) grab that sort of business, particularly if they have a good barrier to entry regarding some part of the product.
I think that buying AMD and S3 would be a good idea for DELL, and that they should do it now, while their stock is still high, and AMD's is still low.
While it is true that CPQ, IBM, HP (& others) all have world-class CPUs, it is also true that those CPUs aren't going to be worth jack unless MSFT writes software for them. So like you (almost) suggest, the real cards are held in the hands of Bill Gates. The processors that he decides to support will be the only ones that can survive, or their clones. But does an investor in DELL really want to gamble on the relationship between Dell and Gates? MSFT is the one with the monopoly power, not DELL, and MSFT is the one that will always wear the pants in any such relationship. You might notice that MSFT is branching out into all kinds of hardware as well as software. If they survive the current lawsuit, maybe they will buy AMD (with a much smaller percentage of their equity than DELL would use) and start making their own PCs. If they did, I would probably never buy another box from a different maker, as the one thing I want most is Microsoft compatibility. As a current hardware example, I fly my copy of Red Baron II on a Microsoft Sidewinder 3D Pro joy stick. (lots of fun.) It works perfectly with their software, as I never had a doubt that it would. A lot of other consumers will think the same way, especially as little problems begin to show up with MSFT software running on the competitors machines. Then say goodbye to all the (other) box sellers.
-- Carl |
