On ASPs and Falling component prices.
Excerpts from News.com
To be sure, PC makers have been hurt by lower profit margins resulting from the price reductions. But a closer look shows that, in many cases, the cost of components is falling faster than PC prices--about a 40 percent year-over-year decline, by some estimates. As a result, the blow of free-falling prices--which has bruised the stocks of some PC makers--is more cushioned than largely publicized.
What appears to be separating the winners from losers is how many units they can sell. Direct PC suppliers such as Gateway and Dell appear to be weathering the storm.
"I think [falling ASPs#93; have affected the stocks more than the earnings," said Lou Mazzuchelli, an analyst with investment bank Gerard Klauer Mattison. ASP refers to the average selling price of a PC.
"These manufacturers aren't stupid," he added. "They're not going to make these machines at a loss. But the investing public sees these falling prices and says, 'There's no way you can make money.'"
Gateway executives said last week that the company's ASPs fell more than 12 percent from last year and 2 percent sequentially to $2,200. That decline partly offset the upside: a 33 percent increase in computer sales during the second quarter compared with a year ago. On Friday, a day after its earnings announcement, Gateway's stock price fell 10 percent.
Richard Chu, managing director at investment banking firm SG Cowen, said that Dell's average selling prices slipped 9 percent last quarter and that he expects them to fall 12 percent next quarter.
The profits per computer, or gross margins, for Dell and other PC makers have not declined much, analysts say, because computer component prices already have hit rock bottom.
"ASPs are coming down, but not nearly as fast as component prices," said Charles Wolf, an analyst with Credit Suisse First Boston. "In the history of the industry, we've never seen component prices come down collectively as fast as they have. It has not only been memory, but storage and processors."
Chu added: "In general, component prices are falling just as fast, if not faster, than unit prices."
.........Nineteen days of Digital's revenue were added to Compaq's numbers for the quarter.
Some analysts say the trend toward low-cost components has been a competitive advantage for direct PC vendors such as Dell and Gateway.
"Essentially the direct guys bought [the components] yesterday and are selling [them] tomorrow, so they can sell through the lower cost to their customers," Chu said. Stock in Dell and Gateway has been up significantly since January.
There's no denying that lower-cost PCs require manufacturers to sell more units in order to turn the same profit they once did, startling some shareholders and company executives. But the changing market has forced some PC makers to provide new services.
News.com's Sandeep Junnarkar contributed to this report.
news.com
|
