RedHerring has published an article that we wanted to bring to your attention. Itis not about Apple or the Mac, but it is about one of Appleis biggest opponents, Dell Computer. Better yet, the article calls a spade a spade by saying that far from a technology company, Dell Computer is an anti-technology company. The article also quotes analyst Tad LaFountain as saying that Dell is a bottom feeder. We couldnit have said it better ourselves. From the RedHerring piece:
Dell is not a technology company. There, we said it. Despite ample evidence to the contrary -- $32 billion in annual sales of computer systems, a Web business that does $30 million in sales a day, and the requisite Nasdaq listing -- calling Dell Computer a technology company is like calling the Bible a good book: itis true in one sense, but completely misses the point.
Dellis style of rapidly commoditizing marketplaces -- driving down prices, and sucking profit margins dry -- goes against everything technology companies are all about. By focusing on markets that are standardizing, and using operational efficiency to gain huge chunks of market share quickly, Dell undermines the very thing that investors usually look for in a tech company: proprietary technology with sky-high margins. So, while it deals in technology products, Dell is in fact the antitechnology company.
Thatis not to say that the Austin, Texas, company doesnit innovate in its own right. It just doesnit innovate with technology. "Dellis innovation is in its ability to refine the processes," says Brooks Gray, an analyst at Technology Business Research (TBR), a market research firm in Hampton, New Hampshire. "They have people brainstorming a 10-cent fix and how to cut back on the number of screws they use."
For the time being, Dell is targeting the $5.3 billion small and medium-size business market in networking. But ultimately, it has its eye on the $30.2 billion enterprise market dominated by the likes of Cisco Systems, Nortel Networks, and others. Cisco, for one, has averaged gross margins of 69 percent over the last five years.
It will take time, however, and for now Dell is just nibbling at the low-hanging fruit. According to Tad LaFountain, an analyst at Needham & Company, the low end of Ciscois product line is already approaching commodity status, which makes it a prime candidate for Dellis business model. "When youire charging the prices that Cisco has been getting away with, youire doing it because youire not selling plug-and-play products, youire selling solutions," he says. "But how much hand-holding do you need to plug a bunch of phone jacks into a socket?" That said, Mr. LaFountain doesnit think Dell poses any immediate threat to Ciscois overall business. "Dellis a bottom feeder. Theyive never run up against anything like Cisco before."
There is a lot more in this article about Dell and the companyis business model that we did not quote.