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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Jock Hutchinson who wrote (105418)	2/26/1999 3:16:00 PM
From: TechMkt	Respond to of 176387

I'd like to see us end over 80 today. Fez

To: Jock Hutchinson who wrote (105418)	2/26/1999 3:25:00 PM
From: TigerPaw	Read Replies (1) \| Respond to of 176387

address the issue of component shortages and its effect on the DELL model. It is a myth to think that there are no warehouses with parts associated with Dell. The difference is that those warehouses are with the supplier and the parts are owned by the supplier. The buffering of demand is otherwise like another company. Those supplier warehouses are the first to be restocked after a shortage. TP

To: Jock Hutchinson who wrote (105418)	2/26/1999 3:32:00 PM
From: Chuzzlewit	Read Replies (3) \| Respond to of 176387

Jock, as always, you come to the heart of the matter. Let me deal with your first point: But the DELL model has only been tested during an era of falling component prices. In an era of increasing component prices, the DELL Model could fail dramatically. According to very simple financial principles a zero inventory firm will prosper when inventory costs are rapidly falling. The converse is that these firms are hurt when prices rise because of the lack of buffer stocks. Quite right if Dell were dealing with components that didn't become rapidly obsoleted. I do not pretend to be a technological guru, but what would have happened had a computer company missed it sales forecasts and ended up with a large stock of P166 cpus when the Pentium IIs came out? I'd make the same kind of argument for RAM and hard drives and mother boards. So I'd suggest an analogy that is a little more intuitive to me: a grocery store. If you have a store with excellent inventory management the chances of being stuck with rotting fruits and vegetables is nil. But a store that stocks up in anticipation of price increases runs precisely that risk. Here's a true story that illustrates what I am talking about. My aunts lived through famine in their native Russia, and when they came here they became horders. So, when it seemed that sugar was going to be rationed during WWII they bought several hundred pounds in anticipation of rationing and stored it in their basement. The mice enjoyed the sugar immensely. Now that's inventory risk! To my simple way of looking at things, technological obsolescence is the virtual mouse, nibbling away at that store of of very real, getting older by the minute technology. I need to think about the issue of shortages, so let me put that answer off for awhile, along with emulating the BTO direct model. Rest assured I will get back to you on those issues. TTFN, CTC

To: Jock Hutchinson who wrote (105418)	2/26/1999 3:52:00 PM
From: edamo	Read Replies (1) \| Respond to of 176387

re: dell model...rising component prices... give you all a point to ponder...dell did not invent the model, it is a tuned version of the j-i-t system that the japanese have used for years...inventory causes pricing problems...even if you average, you may be caught with either the wrong cost in inventory, or even worse, stale material...no inventory allows a manufacturer/assembler to react quickly to changes, without severely effecting cost..you blanket contract your supplier purchases, with commitments to fixed price for the duration of the contract...the onus of cost control falls on the down stream vendor who has committed his supply to you.....you source globally and take advantage of currency hedges...many ways to stabilize purchase costs...necessary in the high tech industry where obsolesence of parts comes all too soon...ala moores law...maybe simplistic, chuz can follow up with numbers, if he accepts my premise...ciao to you...ed a.

To: Jock Hutchinson who wrote (105418)	2/26/1999 4:07:00 PM
From: Jill	Respond to of 176387

Jock...These are interesting points... It's nice to see you contribute sharp analysis to the thread, w/o anger. In fact, it's nice to see how civil and insightful the whole thread is today. All's well that ends well. Jill

To: Jock Hutchinson who wrote (105418)	2/26/1999 4:19:00 PM
From: Boplicity	Respond to of 176387

re: The other point that I wish to make is that there appears to be a near unanimous belief among thread members that the DELL model cannot be easily emulated--lots of talk about culture and that sort of thing. Can it be easily emulated? I am not sure, and neither is any other thread member. Tell that to CPQ and their half aborted web site. We will know by the summer if the hybrid model is going to works, but if CPQ resent news release and todays down grades are any indication, they are failing. Keeps this is mind after you have read the above, DELL said there pipe line is the fullest it has been for years, but CPQ has lead analyst lower in their expectations. Greg

To: Jock Hutchinson who wrote (105418)	2/27/1999 11:50:00 AM
From: nolimitz	Respond to of 176387

Jock The truth is that component prices (in the long term) will continue to fall. There may be short term up ticks, but the trend is always downward. IMHO nolimitz

To: Jock Hutchinson who wrote (105418)	2/27/1999 10:13:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 176387

Jock, here is the second of several posts I promised on the advantages that Dell has over its competitors. Let me start by referring you to exchange2000.com. This post contains a summary of how Compaq perceives its risks in a channel dominated distribution scheme. In reading this it ought to be painfully obvious why channels are an impediment in dealing in rapidly evolving technologies. But the question you raised was whether it was possible for Dell to enjoy that advantage while its competitors continue to suffer under its disadvantages. In other words, what protects Dell from emulation of it distribution model? I would like to offer two lines of evidence on this issue. The first is emprical. Compaq has been attempting to transition for several years now, and every few monthys it seems to announce yet another initiative attempting to accomplish a direct sales channel. It is currently attempting to employ a hybrid model. I think that Compaq's results speak for themselves in terms of the limited success it has enjoyed (that's a euphemism for patent failure!). In a recent press release IBM owned up to the fact that they could not jettison the channel approach. Gateway is the only significant competitor that I know of that uses the direct, BTO model, and I am of the belief that GTW does pose a significant threat to DELL, not because GTW is in a position to challenge Dell (it isn't), but because GTW could be acquired by another, well-capitalized company and used to transition itself into a Dell competitor (see below). I am not familiar with other competitors efforts in this direction -- perhaps some other contributors to the thread might provide additional information. The second is theoretical. Why should it be so difficult to transition to a direct model? The answer is that the channel acts as a sales force for the product. And the product has many of the characteristics of a commodity (fungible etc.). If a company wishes to extract itself from the cost of channel distribution it must reckon with the possibility that its one-time partner will quickly become a competitor. If Compaq pulls support from channel member XYZ, which contracts with a variety of medium and small businesses, why would it give up those lucrative accounts? It wouldn't. It would suddenly discover the joys and advantages of of IBM machines over Compaq. Or, as in the case of Igram Micro, it might set up a competing white box operation. There is no advantage for these companies to essentially become Compaq salesmen (this is one iteration of Compaq's current plan) because their operation is tied to distribution. Their assets consist of things like warehouses, forklifts and trucks. So the existence of the intermediate channel is the reason companies like Compaq cannot transition to a direct model. In thermodynamic terms we might call this an energy barrier. I call it a profit chasm. How could these computer manufacturing companies jump off the tiger? IMO they buy a company like Micron or Gateway thereby avoiding compromising existing channels. That is why companies like Gateway pose a risk I could go on and on with this subject, but I think I have hit the high points. There are sufficient knowledgeable people on this thread who will quickly correct me if I misstated anything material. In my next post (tomorrow maybe?) I will deal more fully with the issue of shortages. TTFN, CTC