Hi John, good post!
Concerning IBM, CPQ and HWP, it is puzzling to me why their pc segments aren't being viewed with greater apprehension and even alarm by investors. All three companies continue to lose money on PCs. Take CPQ, for example. If you exclude DEC's $1.1b in revenue in the period leading up to June 30th, CPQ would have reported a loss of several cents per share. This would make it the worst qtr since Pfeiffer became CEO in 1991. HP may be in even worse shape. Its PC business lost $50m last period according to Business Week, and some members of HP's Board are "quietly wondering" whether HP ought to stay the course. HP's management is clearly disheartened, and has backed away from its absurd goal to become #1 in pc market share.
Evidently, Wall Street believes the current problems are only temporary. But why should anyone think that? The answer presumably is that IBM, CPQ and HP are in the process of developing direct channel configurations to compete with Dell. Yet, what evidence do we have that is about to happen? Would HP's own CFO Robert Wayman have publicly questioned "how good the pc business is" if HP had confidence in its ongoing attempt to build a direct-channel initiative?
A tremendous problem for these companies lies just a round the corner. It's Dell's surging growth rate. Last yr Dell's worldwide shipments grew 63%. As everyone on this thread knows, Dell is no longer a small company. It is already #2 in corporate sales in the U.S. Let's say Dell continues to grow not at the previous 63% but at a mere 36% per year. This means Dell will double its shipments every two yrs! That's the frightening mathematics of compound growth. Given that the world market is growing at something like 15% annually, someone necessarily is going to lose big time. Dell's competitors are going to be forced to retrench, which means they're going to be shutting assembly plants. How do you make money when you're closing plants? I think we know who the victims will be. Can they be anyone other than the usual suspects, IBM, CPQ and HP?
Perhaps there is a more favorable outlook for these firms. Maybe I'm missing something but I wish someone would point it out.
Geoff |
