“Dell has no readily-identifiable, durable, competitive advantage over industry peers even if its prospects for continued profitability appear solid,” Jaded Consumer writes for Seeking Alpha. “Dell is also a commodity vendor. When selling commodities (in the absence of market manipulation), sellers bid each other down in the fight for sales and to choke off each competitors’ margins.”
“Dell is just a box vendor. The math on commodity vendors is not good. Without a differentiating feature like customization (which, being now standard, is no longer differentiating) or single-source software (which HP can offer to enterprises and Apple can offer to consumers), one expects Dell to compete chiefly on price against rivals like Acer and Lenovo for the world’s commodity PC business,” Jaded Consumer writes.
“Dell has serious competition, even as it claws back the top-PC-vendor crown from HP. Fighting on price has an unsurprising result: reduced profit margins. Anyone surprised by this hasn’t thought about how the business works. In the PC business, margins can get so thin the size of the profit can depend on the fees manufacturers glean from software vendors to install teaser applications and other garbage-ware on their customers’ computers before they are shipped — a practice that is so irksome that some buyers now actually pay resellers to remove the advertisement-ware, which in turn threatens the manufacturers’ ability to make profit on the machines at all,” Jaded Consumer writes.
Jaded Consumer writes, “Michael Dell, who once famously said that if he ran Apple he’d close shop and give the money back to the shareholders, has had to watch Apple’s market capitalization pass and dwarf that of his own company… Yet, it’s much worse even than that: Michael Dell has had to watch Apple beat Dell in Dell’s own area of strength — supply chain management. Is there nothing Dell can do that others can’t learn to do better?”
“To avoid the commodity competition trap, Apple must maintain the distinctiveness of its products and work to increase the value of its platform. Apple has some advantage here, though. The fact that Apple need not pay an operating system licensing fee to an outside vendor for each hardware unit sold means that Apple’s marginal costs will be better than other commodity vendors’, ensuring that in a cutthroat commodity fight Apple has an edge in lowering unit costs,” Jaded Consumer writes.
“In short, if Apple and a competitor were to sell the same hardware at the same price, Apple’s profit could still be higher on each unit — because Apple owns and need not pay for the operating system software every vendor must install. Still, falling margins isn’t fun for anyone. Apple had best fight to maintain and build distinctiveness, to better resist being treated as a commodity vendor in the PC space,” Jaded Consumer writes.
“For Dell, it’s too late. Unable to make a distinctive or profitable product in the music space, Dell stands as a vendor of commodity PCs and their commodity peripherals (while hoping customers don’t need printer supplies in an emergency, and can wait for Dell to ship them),” Jaded Consumer writes. “Dell’s profitability will depend on its ability to build machines more cheaply than competitors like Lenovo and Acer while offering them at the prices low enough to compete against rivals fighting for share.”
Jaded Consumer writes, “My vote on Dell shares: don’t own.”
Much more in the full article here.
Michael Dell – prolonging the agony in order to line his own pockets. Be a man, Mikey: SIDAGTMBTTS.