Re: RE: Prometheus

-----Original Message-----

  6. RE: Prometheus (Jon Paris)

looks like a reliable report. p5 hardware brings in 3x that of i5

hardware.

Maybe I should have said profits not revenue.  What the p series did for
years was to follow the philosophy that if you lost a few $ on each 

unit you

sold you could make it up in volume!  It has been the profit margins on 

the

i Series that has kept the p afloat for years.

I can't dispute this. But _IF_ it's true and _IF_ the following are reasonably 
accurate:

1st quarter 2006 sales:
 xSeries $954 million
 zSeries $555 million
 pSeries $733 million
 iSeries $237 million

...then it would _seem_ that our little niche is in FAR worse shape than many 
of us have thought.

We have $733M at one point with terrible profit margin. Let's say 2%. At the 
second point, we have $237M of which enough is "profit" to bouy up R/D across 
product lines. Yow! Must be at least 10% margin order to be significant, given 
the smaller starting amount of $237M vs. $733M. (I would suspect the profit 
relationship to be worse than that, but it doesn't matter.)

On the $237M side, we have boxes that are slightly more costly to manufacture, 
though virtual IOPs, etc., are probably narrowing the gap. And we have 
operating system, compilers, DB2, security, communications, etc., all of which 
must be tightly integrated and which can mostly be considered slightly more 
costly to design and create than it costs on the other side. (Not to mention 
efforts at including such goodies as PASE for no charge.)

So, with higher cost to produce AND higher margins, the ACTUAL sales of iSeries 
(measured in simple terms of number of systems) must be astoundingly lower than 
pSeries. I can't see ant other way to look at the disparity in dollar volume 
while also accounting for cost and profit.

The hardware can be reasonably similar, but let's say it costs $1.00 for System 
LP (low profit) and $1.10 for System BP (big profit). Say the same for related 
software.

Now, factor in the profit margins on LP and BP and tell me what that implies 
for number of units sold when LP sales revenue is triple+ of BP revenue. It 
looks relatively dismal to me... _IF_ the basic premise holds and the revenue 
figures are reasonable. A third of the sales dollars from a system that is more 
expensive to produce and also gives higher profits...? (And as the profits on 
System LP approach zero or negative...!)

Something isn't adding up.

Tom Liotta

--
Tom Liotta
The PowerTech Group, Inc.
19426 68th Avenue South
Kent, WA 98032
Phone  253-872-7788 x313
Fax    253-872-7904
http://www.powertech.com


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