Different segments of the information technology (IT) business incur
costs in dramatically different ways. Consider first the software
business, where gross margins are 80-85%. Then there is the PC
hardware business, where gross margins rival those of your
neighborhood gas station. The gross margins below are pulled from
2002 quarterly reports for two of the top 5 U.S. PC companies:
Dell: 18% (http://www.hoovers.com/quarterlies/3/0,2167,13193,00.html)
Gateway: 17.1% (http://www.hoovers.com/quarterlies/6/0,2167,16706,00.html)
Though Compaq Computer is now part of Hewlett-Packard, its gross
margins and sales/marketing numbers would have been similar. These
companies support factories, work-in-process and finished goods
inventories missing from the software or Internet companies -- which
has to change the expense percentages.
As a result, percentages for marketing expenses would rise in a
software company, even if absolute $$ did not. PC software companies
have a very low cost-of-goods (COGS) sold: typically less than 5%.
(Those PC hardware companies have COGS of roughly 70-80%.)
The Software & Information Industry Association (SIIA), which started
as the Software Publishers Association (SPA), has been tracking
marketing expenses for at least a decade. This report provides
details on typical software companies:
http://www.siia.net/store/describe/f-profile99.html
Some information from the "1999 Financial Profile of Software
Publishers":
marketing expenses have the highest variance of any expense group
among the software publishers (other groups include R&D, general &
administrative or G&A, COGS). "The medians have been fairly
consistent over the past 5 years, fluctuating between 38% and 42% for
total sales and marketing expenses." The 1999 numbers were 15% for
marketing; 42% for combined sales & marketing, according to SIAA.
If you looked at the sales/G&A expenses for the computer hardware
direct marketers above, you've seen that their percentages for total
sales AND marketing are far lower. Dell is the industry leader -- and
industry target -- with SG&A numbers at about 10% of revenues. Even
with those low 18% gross margins, the company can make money.
Again, the IT business is best examined in its segments: e-commerce
companies will have similar expense structures as an industry matures;
IT consulting firms will also tend to look the same. This comparison
of PC software and PC hardware companies shows how companies in an
industry segment can be dramatically different.
Best regards,
Omnivorous-ga |
