MBA 2004

That's why Dell continues to hone the efficiency of its operations. The company has won 550 business-process patents, for everything from a method of using wireless networks in factories to a configuration of manufacturing stations that's four times as productive as a standard assembly line. "They're inventing business processes. It's an asset that Dell has that its competitors don't," says Erik Brynjolfsson, director of the Center for eBusiness at the Massachusetts Institute of Technology's Sloan School of Management.

Even in the midst of the recession, IBM spent $4.75 billion, or 5.9% of its revenues, on research and development in 2002, while HP ponied up $3.3 billion, or 5.8% of revenues. And Dell? Just a paltry $455 million, or 1.3%. Rivals say that handicaps Dell's ability to move much beyond PCs, particularly in such promising markets as digital imaging and utility computing. "Dell is a great company, but they are a one-trick pony," says HP CEO Carleton S. Fiorina.

Since 2000, the company has been adding market share at a faster pace than at any time in its history -- nearly three percentage points in 2002. A renewed effort to control costs sliced overhead expenses to just 9.6% of revenue in the most recent quarter and boosted productivity to nearly $1 million in revenue per employee. That's three times the revenue per employee at IBM and almost twice Hewlett-Packard Co.'s rate.

What's Dell's secret?
At its heart is his belief that the status quo is never good enough, even if it means painful changes for the man with his name on the door. When success is achieved, it's greeted with five seconds of praise followed by five hours of postmortem on what could have been done better. Says Michael Dell: "Celebrate for a nanosecond. Then move on." After the outfit opened its first Asian factory, in Malaysia, the CEO sent the manager heading the job one of his old running shoes to congratulate him. The message: This is only the first step in a marathon.

Sony must sell 30 games for every PS3 to make up for losses

The Financial Times (I don’t know what I was doing reading it either but stay with me) has a piece up detailing how a weaker yen could actually help save Sony from four years of losses with their Playstation 3 console. Some recent independent analysis has pegged the PS3 at costing Sony Y90,000 ($763) per console which results in a Y30,000 loss for each console sold. On the other hand, some analysts are expecting the console to retail for around €590 ($757) in Europe and Britain when it’s released there and for each console sold, and by the time the Euros made are translated back into Yen, Sony will be losing less than Y3,000 per unit.

Those figures all hinge on how the Yen will continue to hold up against the Euro in the coming months. Sony will be keeping a close eye on just how the forex market plays out because if the market plays out how Sony wants it to, the European PS3 release could save Sony from certain economic hardships.

The forex market will not be the only factor that weighs a heavy hand on Sony’s economic future. Their ability to cut costs with the manufacturer’s who make the many unique components the PS3 will ship with will also be key. Many analysts think that it may be 15-16 quarters before Sony will recoup their initial PS3 investment.

One analyst even goes as so far to state that Sony must sell 30 games per console to make up for the hardware losses they will sustain on each console sold. This assumes that Sony makes about $10 in revenue per game sold though.

Don’t expect the component makers to shed any tears for Sony though since they stand to make some decent profit in providing Sony with these parts…

Yoshiyuki Kinoshita, a Merrill Lynch analyst, believes that a new cycle may have developed. Where previously electronic component makers supplying to the game console makers could not make good margins, the latest generation of machines will deliver a sharp boost to profits.

The biggest components include Nvidia’s Reality Synthesiser costing $129, the IBM Cell processor costing $89, D-ram memory from Samsung at $48, and the Seagate hard drive at $54.

These are fragile times for Sony and the world will be watching to see how they progress.