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Technology Stocks : Gateway (GTW)
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To: NicholasC who wrote (5816)4/25/1998 6:50:00 AM
From: D. Swiss  Read Replies (1) of 8002
 
N, let me respond to your post point by point:

Drop in ASP-the 6% drop in average selling price (ASP) affects the top line sales number, the 1 1/2 percentage points increase in gross margin falls to the bottom line and takes into account the drop in ASP and a larger decrease in component costs.

Sipply Chain advantage-since boxmakers are the end of the food chain, they benefit from the lower component costs which they partly pass on to consumers which in turn stimulates PC demand.

$250 million in inventory-your information from the Fortune article is 1 qtr stale (if you read the q1 report it is now down to 185 million). GTW has managed its inventory down to 9.7 days. While this clearly is not as good as my favorite company Dell with 7 days, it is close and a far cry from the 100 days CPQ has (including channel stuffed inventory). This gives the direct makers a tremendous competitive advantage in a market where component prices continue to fall.

S&P 500 inpact-I did not intend my comment to mean that GTW would experience a permanent increase in valuation from being listed in the S&P 500. I meant that in the short term, there will clearly be an excess of demand over supply since the index 500 funds are enormous and must buy this stock now creating short term upward momentum. The company must continue to grow at a faster pace than the industry to sustain or expand the current valuation.

Shorts are PROs-you are correct. If they feel there is going to be a large upsurge and will even be partly maintained long term, they will cover and come back to play another day.

Pull back started before the announcement-I am confused by this statement. If we started the week at 48 and was at 55 before the announcement with a brief drop to 53 in the midst of a NASD 2% correction, how does that constitute a pull back???? It would seem to me we were doing extremely well on the week with general market conditions pulling the stock down slightly with nothing fundamentally different about the company. Some consider a dip a buying opportunity.

Drew
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