Hi Thread,
Just checking in from Qatar...
Interesting analyst note:
H
PCs: Dealer Demand Still Weak; Retail Robust
08:47am EDT 7-Sep-99 PaineWebber (Young, Don)
* The July channel sell-out data indicates the dealer channel remains quite
weak, while the retail channel is surprisingly strong. We are accordingly
raise our PC unit forecast to reflect the strong retail trend which results
in a new demand and production forecast of 107 million PCs in 1999, an
increase of 3.5 million units. This new forecast reflects growth in end user
demand of 12% and growth in shipments of 17%.
* The primary theme behind the surge in the retail channel is sales of low
priced desktop PCs, often subsidized with ISP rebates, to enable Internet
access. It appears likely that the ISP subsidies will remain in place
through the Xmas season driving strong retail demand. Another significant
factor is a surge in Japanese consumer PC demand.
* The dealer channel is clearly struggling, as July marks the fourth
consecutive month of negative y/y unit growth in channel sell out. Dealer
units declined 4% y/y in July driven by weakness in desktops and notebooks.
When we factor in falling ASPs, which are down double-digits y/y, we arrive
at a large negative revenue trend in the dealer channel.
* Sell-out in the retail channel remained robust in July with unit growth up
33%, spurred by all product categories including desktops, notebooks and
servers. Desktops were the strongest product category with unit growth up
44% y/y. However, retail ASPs have declined at an even more aggressive rate
than dealer ASPs, offsetting some of the benefits of strong unit growth and
translating into revenue growth of 8%-10% y/y.
* Compaq remains the strongest overall performer gaining market share across
both the dealer and retail channels. In the dealer channel, Compaq showed
strength in desktops with a 4% market share gain y/y, translating to nearly
40% of the total dealer desktop market. Compaq's performance in notebooks was
even more robust, with share gains of 7% y/y. We attribute some of Compaq's
share gain in dealer notebooks to aggressive pricing, as Compaq's notebook
ASP remained essentially flat m/m, compared to the other major vendors who
exhibited low-to-mid single digit ASP increases.
* IBM continues to post a very strong performance in the dealer channel, along
with a weak showing in the retail channel. In the dealer channel, IBM's
performance was driven by strength in desktops with a 7% market share gain
y/y. IBM also showed a strong presence in servers, with a 6% y/y gain in
market share. Although we saw a mild pullback in IBM's market share of
notebook, IBM remains the leader in notebooks in the dealer channel, with
more than 1/3rd of the total market share. IBM continues to scale back their
efforts in the retail channel, as IBM's desktop market share has been cut in
half over the past year, falling to 8% in July.
* Among the major PC hardware vendors, Hewlett Packard continues to deliver the
weakest overall sell-out performance in the commercial channel and strongest
in retail. In the dealer channel, HP lost 7 points of market share in
desktops on a y/y basis and 3 points in servers. HP gained 3% of market
share y/y in dealer notebooks, but still remains less than 10% of the total
market. In contrast, HP posted a strong performance in the retail desktop
market, gaining 3 points of market share y/y. HP's printer performance
rebounded in July, which is particularly important given that printers are
almost twice as large as PC's in the company's overall revenue mix. HP's
total printer sell-out revenue rose 9% y/y, on 13% y/y revenue growth in
LaserJets. InkJets also recovered after showing negative revenue growth in
June.
* July was a challenging month for Apple in terms of the company's ability to
meet demand. On a sequential basis, Apple lost 2 points of market share in
the retail desktop market, on a 41% m/m decline in iMac units. However, on a
y/y basis, Apple has gained 3% of share in the retail desktop market. The
problem for Apple does not appear to be demand -- rather it is supply. Our
inventory data for July suggests that Apple stocked out of iMacs and
PowerBooks which is very bullish for Apple's outlook.
* The Sub-1K market continues to expand, comprising 74% of the retail desktop
market in July, compared to 39% in July of 1998. E-Machines remains a major
player in the sub1K arena, with particular dominance in the $500 to $750
segment, which comprises 42% of the total sub$1K market. On a sequential
basis, E-Machines gained 5% market share in the retail desktop market,
reaching 16% share in less than one year of operation. The sub$1K portion of
the market included 21% of the total dealer desktop market, up 2% y/y.
* Despite our increase in our forecast for PC demand and shipments, we believe
the competitive environment in the PC hardware market will become
increasingly difficult in the second half, as the major players will no
longer have the benefit of easy compares to periods in 1998 when production
was slashed or large pricing reserves were taken. The exception is the
strength in consumer demand and the company's most leveraged to the consumer
-- GTW & AAPL.
Launching New PC Channel Inventory Tracking
08:31am EDT 7-Sep-99 PaineWebber (Young, Don)
* We are launching today a new research capability to track PC channel
inventory levels. We are now able to sample inventory levels by vendor and
by model at the end of every month.
* The channel inventory data is collected electronically from all participating
sites (over 17,000 locations). This is the same data used by the PC vendors
to help provide them with a view on channel inventory and sell-through. We
are typically able to analyze the data and organize a conference call with 2-
3 days, which we believe is a faster analysis than the PC hardware vendors
receive from their third party data analysis partners.
* We have back checked the data and believe that it provides a very accurate
representation of actual inventory levels. Two checks, in particular, were:
1) falling Apple PowerBook inventory levels leading to recent stock-outs that
were confirmed by the company; and 2) the dealer channel inventory build by
Compaq and IBM in late 97/early 98.
* Current channel inventory levels appear healthy in the retail channel.
Apple's channel inventory stands out from the rest of the PC competition.
Apple's iMac inventory in the retail channel is far below the industry
average. While the major PC vendors have been building retail inventory in
preparation for the heavy back-to-school and Christmas selling seasons,
Apple's iMac inventory has continued to fall and now sits at approximately
two weeks, well under half of the industry average. At 1.5 weeks, Apple's
PowerBook inventories have also been falling. Taken together, the data
indicates that Apple needs to ramp production to not only meet current
demand, but to refill the channel. Apple is sold out or stocking out in a
number of critical product lines.
* Dealer inventory levels for the industry are close to two weeks for desktops
and three weeks for notebooks -- excellent levels considering the problems of
the past when demand was weak. No major vendor stands out in either category
and all are lumped relatively close together. On the margin, Compaq has
slightly higher desktop inventory levels, while IBM has slightly lower-than-
average levels.
* Dealer notebook inventories, though down sharply from the bloated levels of
Spring 1998, are not at a low enough level to indicate an industry shortage.
Furthermore, the most popular commercial notebook, the ThinkPad600, has
remained in the 2-4 week range for the last 12 months. The 3 week level of
the last two months is the highest level since December, providing more
evidence of healthy notebook supply. We are beginning to question how long
notebook pricing will benefit from the shortage of LCD panels and how much of
an LCD shortage there really is.
Retail Channel Inventory Levels -- Weeks of Inventory
Feb-99 Mar-99 Apr-99 May-99 Jun-99 Jul-99
AAPL 2.5 2.3 1.7 3.3 3.1 3.4
CPQ 3.7 4.0 5.2 5.2 8.6 8.2
Emachines 1.4 4.1 7.1 4.1 8.4 7.2
HWP 2.8 5.2 3.7 6.4 4.3 6.7
IBM 6.0 5.4 4.8 4.8 6.3 8.4
Industry Avg 3.4 3.6 4.7 5.3 5.4 7.5
Dealer Channel Inventory Levels -- Weeks of Inventory
Feb-99 Mar-99 Apr-99 May-99 Jun-99 Jul-99
CPQ 3.4 2.8 2.6 2.6 3.0 3.2
HWP 3.0 2.7 2.6 2.8 2.9 2.7
IBM 3.0 2.4 2.6 2.2 2.3 2.0
Industry Avg 3.2 2.7 2.6 2.5 2.8 2.7
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