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Featured Article: Just a Peek - StoryMill

Apple Turns the Tables on Dell with Component Costs

by , 2:55 PM EST, November 30th, 2007

Analyst Shaw Wu is maintaining a neutral position on Dell in his periodic research notes due to the recent erosion of gross margins. The reason: poor procurement execution. Mr. Wu believes the unthinkable has now happened: Dell's component costs may now be higher than Hewlett-Packard's and Apple's.

The two key paragraphs from Mr. Wu's notes tell the story:

• Most confusing and controversial was the gross margin, which came in at 18.5%, down 150 basis points Q/Q from 20% (consensus ~19.1%), despite a favorable mix shift towards notebooks. DELL cited a tougher component pricing environment. We find this odd as AAPL and HPQ experienced the opposite and our own supply chain checks indicate otherwise.

• Moreover, DELL's ASPs [Average Selling Price] were flat to up, indicating pricing pressure wasn't a big issue. We believe poor procurement execution was the key reason for the margin erosion. It is interesting to note that DELL's costs may actually now be higher than HPQ and AAPL, something that was unthinkable not that long ago.

Some analysts have pointed to Apple's cash on hand as a factor in obtaining favorable pricing from component suppliers. This provides a credible explanation for how Apple may have been able to leverage a deep seated financial advantage over Dell and maintain its favorable gross margins.

Observer Comments

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Close Name:Small White Car Posts: 1960 Joined: 02 Jul 2004
Fri Nov 30, 2007 4:47 pm Subject: More Focused

Another thing that helps is Apple's streamlined product line.

Out of ALL the computers Apple sells, they offer these processors:
5 speeds of Core 2 Duos
3 Speeds of Dual Xeons
1 Speed of Quad Xeon

That's 9 chips, TOTAL. How many varieties does Dell offer? Haven't a clue but I'm pretty sure its a lot more than that.

So I'm guessing that even though Dell sells more computers, from Intel's perspective (looking at one chip product at a time) Apple sells more of these particular chips than Dell does. So they probably get better prices.

Bulk pricing doesn't come by company, it comes by product.


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Close Name:Guest
Fri Nov 30, 2007 7:48 pm Subject: I never believed Dell

During the time when all PC manufacturers were reporting losses. Especially when the laws changed and a CEO would have to sign off on the earnings report. It was odd that after that Dell stepped down and Rollins assumed the helm. They probably were lying all along.


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Close Name:BillH Posts: 382 Joined: 20 Jan 2007
Sat Dec 01, 2007 1:10 am Subject: Dell

Once again I think the boys on the Observers Finance BB are ahead of the paid analyst. It's been discussed for some time that Apple is stealing the profitable (higher margin) part of the business from HP and Dell leaving them with the lower (or little) margin part of the business. This would corroborate that theorem.


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Close Name:Steve Ballmer Guest
Sat Dec 01, 2007 1:37 am Subject: LIES!

[Boring load of old bollocks removed, as per usual]


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Close Name:Guest
Sat Dec 01, 2007 5:34 pm Subject: whadhesay ?

"Just shut it down & give the money back to the shareholders"

Uh huh, look who's talkin trash NOW Glad Stevey is NOT a tech-industry BEOTCH, uh huh oh yea 4 sure. "Dude, you're gettin a (more EXPENSIVE) Dell!"

Go ahead, waste yo cash now, buy a 'puter from Mikey, and lets see where he's sittin 5 yrs from NOW


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Close Name:Guest
Sat Dec 01, 2007 5:37 pm Subject:

Quote
Small White Car wrote:
Bulk pricing doesn't come by company, it comes by product.


No, bulk pricing comes from sales VOLUME, AND contract guarantees......


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Close Name:Small White Car Posts: 1960 Joined: 02 Jul 2004
Sun Dec 02, 2007 1:00 am Subject:

Quote
Guest wrote:
Quote
Small White Car wrote:
Bulk pricing doesn't come by company, it comes by product.


No, bulk pricing comes from sales VOLUME, AND contract guarantees......


Why did you say "no" and then proceed to list facts that don't contradict me in any way whatsoever?

What does the "no" mean?


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Close Name:Guest
Tue Dec 04, 2007 1:57 pm Subject:

[quote="Small White Car"] Haven't a clue but I'm pretty sure its a lot more than that.

quote]
Haven't a clue but I'm still going to throw in amother wothless opinion?


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