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Re: Is Dell Embarrassed About Linux?

  • Subject: Re: Is Dell Embarrassed About Linux?
  • From: "Larry Qualig" <lqualig@xxxxxxxxx>
  • Date: 1 Mar 2006 09:00:01 -0800
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Roy Schestowitz wrote:
> __/ [ Larry Qualig ] on Tuesday 28 February 2006 23:19 \__
> >
> > Rex Ballard wrote:
> >> ANY OEM must sign an OEM License agreement.  A manufacturer who does
> >> not negotiate such terms could opt to pay full retail or wholesale
> >> prices for retail versions of Windows which could be resold.
> >>
> >> Of course, the OEM license agreement is always negotiated.  And
> >> Negotiation involves having information that can be used as leverage in
> >> gettin concessions from the other party while making acceptable
> >> concessions themselves.
> >>
> >> For the last 20 years, Microsoft has been the one with most of the
> >> leverage.  Ironically, when Dell first started, their primary business
> >> was selling PCs powered by SCO Unix.  They didn't NEED Microsoft
> >> initially, but once Microsoft got their hooks into the company, Dell
> >> had to make huge concessions.
> >>
> >> Quite simply:  Dell is selling millions of machines with Windows.
> >> Microsoft has the ability to revoke your contract or refuse to renew
> >> Dell's contract unless Dell makes all of the concessions Microsoft
> >> want.  Such an action that would have almost guaranteed bankruptcy.  A
> >> CEO is a CEO because he thinks beyond his own family, children, and
> >> personal ambitions - he assumes responsibilities for the families and
> >> children of all his workers.  If someone pointed a gun to your child's
> >> head, then handed you a contract which you would never otherwise sign -
> >> under that threat of eminent death or injury to your child, you might
> >> go ahead and sign.  Now imagine that you have 20,000 workers with
> >> 40,000 children - and your refusal to accept Microsoft's terms would
> >> mean that those workers would lose their jobs, those children might end
> >> up turning to crime or possibly even die, and all because you wouldn't
> >> sign the contract.  The scars of massive unemployment are quite
> >> familiar in Texas.  The Oil industry has gone boom and bust several
> >> times.  I'm sure that Michael Dell would do quite a bit to keep that
> >> from happening to his people.  They could lose their houses, their
> >> cars, their retirement savings, their kids college education funds, and
> >> everything else they hold dear.
> >>
> >> To a CEO, the threat of such hardship to so many people is no different
> >> than pointing a loaded gun at your child's kneecaps and threatening to
> >> pull the trigger.  And Bill Gates is equally determined to make sure
> >> that the same thing does not happen to his people in Redmond, Bellvue,
> >> and Seattle.
> >>
> >> So here you are, with two very powerful and responsible corporate
> >> leaders, ultimately sitting down at a table - Bill Gates trying to
> >> protect his thousands of workers from a suddend and dramatic shift to
> >> Linux, and Michael Dell, trying to protect his thousands of workers
> >> from a sudden revocation of Dell's ability  to sell millions of
> >> computer with Windows.
> >>
> >> There is another problem though.  As Michael Dell, you have been
> >> watching prices erode on Windows systems.  You have been losing money
> >> on every PC you sell.  For about $20 more per PC you could almost
> >> double the price and make more money per PC than you EVER made with
> >> Windows PCs.  But to do it, you have to get some concessions from
> >> Microsoft.  Concessions that Bill Gates knows will reduce the leverage
> >> Microsoft holds over Dell.
> >>
> >> The problem for Microsoft is that so many Microsoft loyal OEMs are
> >> either already bankrupt, or virtually bankrupt, or losing money so fast
> >> that they will go bankrupt within the next year or two.  The only thing
> >> they have to offer is Vista, which has been delayed for almost 3 years
> >> and won't really be selling in volume for at least another year - and
> >> Windows XP which has now over 5 years old.  The ONLY OEM that is making
> >> substantial profits on their PC products at the moment is HP, who
> >> gambled and started selling AMD-64 machines, that were fully Linux
> >> ready.  Microsoft was able to keep HP from shipping the machines with
> >> Linux by offering Windows OEM licenses and allowing end-users to put
> >> Windows functionality into the Linux boxes - but it's clearly a
> >> problem.
> >>
> >> Both Microsoft and Dell realize that the "Status Quo" isn't going to
> >> work.  Dell will have to sell Linux machines to get some profitability,
> >> and Microsoft has to offer something that will keep them in the
> >> marketplace.
> >>
> >> Microsoft can offer discounts for loyalty, and they can reduce
> >> discounts in exchange for concessions to the Linux market.  The problem
> >> for Microsoft is that even if they discount 1/2 the price of their
> >> $60/machine OEM license in exchange for "lock-in" clauses, this is
> >> nowhere near enough to offset the $300/machine potential profit margin
> >> available in Linux machines - the real question becomes - how many
> >> Linux machines can these OEMS sell - with or without Windows.
> >>
> >
> >
> > ---> There is another problem though.  As Michael Dell, you have been
> > watching prices erode on Windows systems.  You have been losing money
> > on every PC you sell.
> >
> > According to SEC filings last year Dell sold  37,754,066 computers.
> > Their gross profit was $9,015,000,000 or $238.78 per computer. Taking
> > out R&D, advertising etc. we end up with a net profit before taxes of
> > $4,254,000,000 or $112.67 per computer.
> >
> > Dell is nowhere near losing money on every PC they sell. In fact Dells
> > profit for the last 3 years has been steadily rising.
> >
> > 31-Jan-03 = $2,844,000,000
> > 31-Jan-04 = $3,544,000,000
> > 31-Jan-05 = $4,254,000,000

-> You make it sounds as though the sun always shines atop Dell

Actually I was simply pasting data from SEC filings. The sun may not
always shine on Dell computers but it is absolutely ridiculous to think
that Dell is "losing money" on every PC they sell.

> I cannot deny the fact that 1-2 weeks ago, headline announced Dell's rise in
> terms of profit, but then again you must account for stories such as _this_:
> http://news.bbc.co.uk/1/hi/business/4426828.stm
> I wrote about it in the context of Intel's faulty motherboards.

It's basically a product recall that ended up costing them millions of
dollars. Net-net DELL still made a profit (even after the recall) but
the profit was lower because of a $442 million dollar one-time charge.

Dell is clearly NOT "losing money on every PC they sell" and it's
absolutely ridiculous for anyone to be posting nonsense like that.

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