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

To: Jock Hutchinson who wrote (107485)	3/5/1999 1:09:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

Good morning Jock, I both agree and disagree with your comments. First, our points of agreement: future hypergrowth depends on migrating towards new businesses, and I think the alliance with IBM is clearly one such step. I expect we will see others. Our point of disagreement: your tacit assumption that commoditization of the PC market is a negative for Dell. Some time ago Michelle Harris pointed out that e-commerce works particularly well for commoditized businesses. I think she is right. Dell's clear edge in efficiently managing its assets gives it a cost advantage unmatched in the industry. [Remember that if you are doing cross-company comparisons Dell's costs are the total costs while companies relying on channels do not reflect the costs of final distribution.] That means that DELL can operate profitably while its competitors are at break-even or losing money. The implication of this is clear: Dell will continue to rapidly gain market share at the expense of its competitors because it has much more maneuvering room. In logical terms, there are certain necessary conditions for hypergrowth to occur: 1. The company has efficient asset management which leads to high cash flow rates. 2. The market for the good or service is experiencing hypergrowth; and/or 3. The company has a relatively small market share; Now if you add to that the idea that the product is a commodity (fungible) you have created the necessary and sufficient conditions for hypergrowth. The constraints I see for Dell consist of two factors, the first real, and the second possible. 1. The real situation: Dell has grown its market share at a prodigious rate. It's success is self-limiting, because at some time it cannot grow faster than the overall market. At current rates of growth I would expect Dell to stop growing significantly faster than the market given its current market mix in about 3 - 4 years. 2. The potential situation: Some on this thread believe that the PC market will start to shrink as limited computer appliances become available and begin to dominate an increasingly net-centric paradigm. I personally don't see this happening, but I am far from a computer marketing guru. These possibilities create the evolutionary imperative: either you evolve or you become extinct. Clearly, Dell is looking to evolve, and I believe that the migration towards the high end is additional tangible evidence we have of Dell's thinking. Previous initiatives included moving into the server market and moving into mass storage. Sorry to be so wordy, but this post is more for me to crystallize my thinking than to pick a fight with you <VBG>. TTFN, CTC