victor and all -
I have a half-baked theory about the "15% - 17%" revenue statements which may be wishful thinking but which connects up the dots pretty well I think... let me put it out and see what y'all think.
Capellas has made several strong statements recently about "caniballizing" his own products rather than lose that business to competitors. We have heard equally strong statements about making the commercial PC business profitable over revenue gain, and also that he does not intend to give up share in that space. We also have the example of the iPaq, a product which is designed to be profitable and grab unit share but at the expense of absolute revenue. The CPQ executive who owns that product said that he expects such products to be 50% of CPQ's desktop business. The iPaq represents a cut in ASP from about $1,400 to $499, or about 35% of current levels - if that is half of the mix, revenues fall by close to 30% at constant units, but losses disappear and are replaced by profits. CPQ also moves closer to the high end and away from being a "boxmaker", and also develops a big competitive edge in the marketplace.
I have advanced this argument before but did not look at the effects on CPQ's macro numbers...
The commercial desktop business represents 30% of CPQ's revenue currently. If that was cut by 30% (say by a fall in average ASP as projected above) it would, in itself, represent a cut of 10% in revenue, but would improve cost of goods sold numbers by a big factor (which Capellas stated as a goal), since it is an inventory-less model.
Now assume that in the absence of that effect CPQ would show a healthy 25% to 27% growth in Enterprise and Consumer sales - also in line with what we have been seeing and in line with comanies like SUNW which are regarded as great performers.
The combination of those effects puts CPQ at the 15% to 17% that Capellas is suggesting, greatly improves profitability and reduces cost of goods sold, moves CPQ much farther along the path of enterprise provider and away from box maker, and positions the company for rapid growth going forward since this shift in cost model is essentially a 1-time event.
If CPQ has some bold plan to drive this kind of initiative, they might not want to spill the beans but still would need to start providing guidance about what the effects on earnings and revenue might be - which it seems Capellas has done.
This may be a pipe dream but it holds together pretty well for me. As I look through the recent statements (over the last few weeks) and add in the data from yesterday, this seems like an increasingly likely scenario, and also a good next chapter in cleaning up the "old CPQ" and bringing forth the new...
Any thoughts???? |
