Dell Uses its Muscle to Beat Side-Effects of Taiwan Quake

  • Written By: R. Krause
  • Published: October 13 1999

Dell Uses its Muscle to Beat Side-Effects of Taiwan Quake
R.A. Krause - October 15th, 1999

Event Summary

October 7, 1999[Reuters] -- Dell Computer Corp. chairman Michael Dell said the company's financial performance should not be affected by an earthquake that knocked out industrial production in Taiwan last month. He said Taiwanese computer parts plants damaged in the September 21 temblor quickly resumed production and Dell, the world's second largest personal computer seller, had used its market muscle to assure a steady stream of computer chips.

"In terms of Q3 (third quarter) specifically, I think we're going to do okay...all of the things we've seen so far seem to be addressable through supplier leverage," Dell said at a meeting with analysts. "We're going to squeeze out the little guys, and I think we're going to get the parts we need," he said. "I feel very, very good about the long-term environment and I don't think the short-term environment is going to be one that has massive obstruction to our business."

Market Impact

Although the earthquake has affected areas such as memory prices, the effect on the overall market has not been as great as predicted. Dell's use of its size to get supply concessions (a/k/a "squeezing out the little guys") is nothing new in the industry the larger players just do not brag about it much. In this case, with PC competition so fierce, the (smaller) players who cannot get their demand met will be hurt. There will be market consolidation as some of the weaker vendors suffer over the next six-nine months, and Dell Compaq, HP, IBM, and Gateway take advantage of their market presence and clout.

Customers may gravitate to Dell, if they believe it is the only company responding in this fashion. However, most customers will realize this is how the large vendors operate, and not be moved by press releases.

User Recommendations

Users will see some short-term uptick in prices, until Taiwan production has fully recovered. Users purchasing large quantities of memory may want to delay purchases a few months until prices settle.

Despite Mr. Dell's comments, we do not believe there will be any significant difference in the effects felt by the major PC vendors (Dell, Compaq, et al.), so purchases from the larger vendors need not be switched from one to another because of the earthquake.

For the longer term, users should factor in vendor size and viability into their purchasing decisions, in anticipation of similar natural occurrences.

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