Re: Demand
QNTM cited an IDC report that shows that quarterly growth from the September quarter to the December quarter is only 9% instead of the expected 20-25%. Slower than expected demand + Overcapacity and oversupply (Japanese and Koreans, yes but SEG has the largest overcapacity problem) = the hellacious margin squeeze we have seen so far in the disk drive supply chain. The PC mix shift biased towards the low-end also has the practical effect of squeezing margins some more. See below.
...Nearly a year after the sub-$1,000 market began to take off, the segment continues to be the fastest growing category of personal computer. According to PC Data Inc., a market research firm, sub-$1,000 computers made up 39.1% of retail PC sales in October, up from 7.1% of sales a year earlier.
And during the same period, sales of $1,500 to $2,000 machines slipped to 20.3% of the market from 37.9%. Machines selling for $2,000 to $2,500 fell to 4.2% from 16.4%....
This is a sampling of Retail PC sales in October from the preceding WSJ article. Extracting some numbers provides an interesting snapshot...
October 1997
Retail PC sales
[Note: from 1996 figure to 1997 figure or Year over year]
sub-$1,000 segment = from 7.1% to 39.1% or +551% YOY
$1,000 to $1,500 segment = from ~35% to 35% or assumed flat YOY
$1,500 to $2,000 segment = from 37.9% to 20.3% or -46% YOY
$2,000 to $2,500 segment = from 16.4% to 4.2% or -74% YOY
over $2,500 segment = from <5% to <5% or assumed flat YOY
If we line up 1997 PC mix and YOY growth rates with probable DD capacity points and price ranges (WAGS)....
sub-$1,000 segment = 39.1% -> 551% YOY -> 1.0-2.1 GB -> $100-170
$1,000 to $1,500 segment = ~35% -> flat YOY -> 2.0-3.0 GB -> $170-250
$1,500 to $2,000 segment = 20.3% -> (46%) YOY -> 3.0-5.1 GB -> $250-$300
$2,000 to $2,500 segment = 4.2% -> (74%) YOY -> 5.1 and up -> $300+
Note:
1) US retail sales represent only 15% of US PC demand
2) US consumer PC demand is about 15% of world demand while corporate PC demand is about 15%.
3) WAGS = wild assed guesses
Some observations based on October 1997 sample:
1) PCs selling below $1,500 accounted for 42.1% of retail PC sales in October 1996 and 74.1% in October 1997 with the sub-$1,000 PC accounting for all the YOY growth.
2) Based on this limited sample, 74.1% of all PC-attached DD sales, or OEM sales, is currently be in the 1.0 to 3.0 GB range ($100 to $250) where I think SEG, Fujitsu and Maxtor are just basically swinging away to grab volume.
3) If this trend persists and there is no expansion of the higher priced PCs, this could be the mix shift from hell as far as the PC food chain is concerned. Historically, MSFT and INTC have captured about 50% of the total profits of the food chain. With the top 5 PC makers (Compaq, Dell, IBM, HWP, NEC/PBell) growing faster than the rest and capturing some hard-earned margins from its upline (INTC, MSFT) and and most of the margins of its downline (component suppliers), that would suggest that component suppliers have to get bigger in order to grow faster than its competitors.
Best to track this unsettling trend. |
