__/ [ 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 Computers. 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.
Best wishes, guys.
Roy
--
Roy S. Schestowitz | "Ping this IP, see if it responds the second time"
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