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

To: stockman_scott who wrote (129211)	5/27/1999 11:10:00 AM
From: rudedog	Read Replies (2) \| Respond to of 176387

Scott - Assuming we are talking about the consumer PC business, I have posted extensively on why this business will be a hard one for DELL to penetrate without disrupting their current business model. It is frankly hard for me to imagine a way for DELL to "do it differently" which would make it a natural expansion. They may have reasons to go into this space because of the need to drive unit growth or parts volume which would move them in that direction, but let's just take a minute to look at the issues. 1 - Well established patterns in consumer buying trends going back years say that most buyers in this category (more than 80%) would rather get a "package" which meets most of their needs than "roll their own", especially if they get a better price by taking the deal. Unlike corporations which purchase volumes of machines and can amortize the configuration costs over many units (or roll up the savings from having DELL do that configuration), most consumers are buying only one or at most 2 machines. A package which includes most of the features and software which these users expect, and has a good "out of box" experience, will win if the price is right. 2 - These same customers want a "hands-on" experience. CPQ does this by selling through stocking retailers. GTW does it by providing a "hands-on" experience with remote fulfillment. How does DELL satisfy this requirement? 3 - Production of fixed configurations is done most efficiently by a single run of identical assembly - this enables even more precise management of the supply chain and internal inventory than DELL's current production methods. GTW does this by working from Intel's base components, as DELL does in the Dimension line,. This is slightly less efficient than CPQ's integrated designs, since GTW and DELL are taking whatever production efficiency Intel delivers, and paying Intel something for the sub-assembly work. There is more but those are the highlights. I believe that even if DELL did an excellent job in this space, these units would go out at substantially less Gross Margin than the current desktop line, which is already putting margin pressure on DELL's financials.

To: stockman_scott who wrote (129211)	5/27/1999 11:21:00 AM
From: rudedog	Read Replies (4) \| Respond to of 176387

If an expanded alliance with IBM is announced, watch out..!! We have seen a lot of commentary on a close alignment with IBM on this thread. I have watched IBM's partnering activities over many years, and IBM does not usually end up holding the short end of the stick. No doubt one of the reasons that a broader alliance has not already been announced is that IBM is so clever about the terms of such deals that a partner, even a big one like DELL, has to work every detail to secure an advantage. And even there, the slightest shift in market perception or buying habits can take the value out of the deal for the partner. There are of course interesting possibilities and obvious synergy between DELL and IBM at the moment, but announcement of a broader alliance with IBM is not necessarily a positive for DELL. Let's look at one possible scenario. IBM does a deal to outsource manufacturing of much of its PC line to DELL, in exchange for getting DELL to do something in return, say lock up long term service with IBM. As soon as the deal is signed, IBM spins up the PR machine - see, the PC really is dead, only a vendor who has no other option would stay in that business, the real growth is in services. IBM gets the halo - after all, they unloaded a money-losing business and expanded services at the same time. DELL gets expanded unit volume but at lower margins and without the benefit of direct customer contact for that business. How would the street perceive that? I believe they would see that as further evidence that DELL is locked into the PC space in a death spiral. DELL would at that point be responsible for nearly 30% of the desktop business, but at substantially lower margins than today. How can DELL top that act? They would do better to just steal that share from IBM.