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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Earlie who wrote (52136)	3/16/1999 12:43:00 PM
From: jim kelley	Read Replies (3) \| Respond to of 132070

Earlie, Here is a critique of your critique: "- Dell has to cut prices to retain or acquire additional market share. Since the company is still not a player at the bottom end of the spectrum, and as this is where most of the action is, Dell will be forced to cut prices aggressively at its more expensive price points. This is hard on margins." DELL is in a better position to reduce prices and still retain healthy margins. DELLs operating expenses were 9.5% last quarter. The lowest in the industry. As DELL's volume increases their product costs will drop and their operating expenses will also drop even further. Thus DELL can afford a price war whereas CPQ and the others will simply take losses. If DELL has the production capacity it can emerge the victor in a price /volume war. "- The P3 is a complete sales disaster. It will do nothing for Dell except soak up advertising dollars that provide a "nil" return. This is also hard on margins." How can you maintain the position that the PIII is a complete disaster when it was only introduced 1 month ago?! - Despite the claims to the contrary, neither government nor big business are major purchasers of PCs this year. This is Dell's bread and butter. This is hard on the revenue line. Government and big business are always major purchasers of PC's. Perhaps what you mean is that growth in these sectors is slowing? If so then DELL growth will have to come out of the hides of the whitebox dealers or the other big five companies. "- Dell has targeted smaller businesses, but this is a brutally competitive arena. It is also an arena where price is important. Sales into this sector will also hurt Dell's margins." DELL can afford to sell on reduced margins while the other companies cannot. Higher volume will help the improve product margins through economies of scale in purchasing and manufacturing. "- The "pipeline fill" comment is bogus unless one accepts that Dell has given up its "direct sales" business plan." You are misunderstanding what DELL is talking about. This is the "orders pipeline" from big business and government where the bid calls for scheduled deliveries in the future. There is no inventory pipeline of 60-70 days . I suspect some of the orders called for scheduled deliveries of PIII desktops and servers and delivery could only begin after Feb15. "- The "direct sales" niche is now very crowded and very competitive. Dell has been joined by some big bruisers. Reminds me of a brawl in a small room,.... people will get hurt even if they are good street fighters." Again you are seeing only the glossy brochure. DELL has an infrastructure tying manufacturing, logistics, sales, etc that none of the other internet companies has. Nevertheless, this is an interesting area to watch. - The "deferred spending - Y2K" stuff is dreaming. Not likely Y2K will not go away this year, but better data would be interesting. "- MSFT actually did warn in its own way. Why bother to tell the world that you are doing some accounting shuffles ($400.0 million gets moved out?). Since MSFT gets its royalties as a PC is built, and not when it is sold to an end-user, that company is in a poor position to provide any guidance with respect to final sales, which is what counts for Dell." MSFT stock price is up! Not down since the announcement. MSFT gets revenues from both installed base as well as the new machines during upgrade cycles. So I do not think that MSFT has a problem. The 400M will accrue in 4th quarter in June and is a fulfillment of their upgrade coupons. - Intel has both plenty of inventory and slow sales. Without accounting legerdemain, INTC's Q1 will be a big disappointment. I still think we get a warning, but it really doesn't matter, as a bad quarter is a bad quarter. You seem to be saying that even if INTC reports a good quarter they will have to cook their books. I disagree. INTC has 4 new products this quarter to sell. The indirects have to order these products to do their batch builds and in fact that is exactly what is happening. JK