DELL, COMPAQ REMAIN KING OF THE PC HILL-ANALYSTS
(09/18/98); 4:56 PM CST
By Craig Menefee, Newsbytes
SAN FRANCISCO, CALIFORNIA, U.S.A.,
Craig Menefee, Newsbytes. Industry slowdown or not, a
featured analyst at the 28th annual NationsBanc
Montgomery Investment Conference predicts Dell
Computer [NASDAQ:DELL] and Compaq Computer
[NYSE:CPQ] will remain on top of the PC heap for the foreseeable future.
The rankings have less to do with how the market grows than with how
firms execute business strategy and grow market share, and Compaq and
Dell excel in those areas, said analyst Kurt King.
PC maker stock returns do not even depend as much on overall sales
growth, according to King. Returns are more likely to depend on the
relative standing of the firms.
By those measures, said King, the clear pack leaders are Compaq (if the
cost or buying Digital Equipment Corp. is excluded), Dell, Hewlett- Packard
and IBM. The four giant PC vendors took a full three-quarters of the total
PC industry unit growth during the past year and are expected to continue
to dominate the PC market, despite an industrywide slowdown.
King based his remarks on a statistical analysis of 10 years worth of industry
data, in which he tried to identify what circumstances would have the
largest impact on stock returns of PC companies. He found the most
important factor in explaining PC company stock performance was
"consistency of operating margin," which he considers a proxy for solid
execution.
"Greater operating margin consistency translates into better stock
performance," he said in at the conference.
The four top players are big in the server market, which has shown
above-average gross margins and much higher barriers to entry than
desktops and portable systems. Server strength, according to King, will
increasingly separate the winners from the losers since growth of servers
has outpaced the industry as a whole.
And the top four are winners in the server market. Compaq, HP, IBM and
Dell are so dominant that King doubts "any other PC vendor will ever get
more than a five percent market share in servers."
On the other hand, companies without a significant server side are not
likely to do well in the long run as the PC market gets tougher. As a result,
said King, the list of top PC players is not likely to change.
Still, it's not all bleak for other vendors, King said. Even with the market
share of the four largest vendors steadily increasing, they will not control
more than an estimated 32 percent of the worldwide market. That should
leave ample playing room for other players to gain market share, if only by
cannibalizing each other.
If the PC industry growth rate takes off again, the picture could change,
King said. Unit growth is lower than it has been in more than five years
and industry analysts have predicted a "flat 98" because of falling average
sales prices (ASPs).
King said the next most important factor after consistency of margin in
explaining PC company stock performance is company revenue growth,
which can be partly explained by shifts in market share. Shifts in the
current economy are enhanced by fragmented international markets and
represent a substantial opportunity to US PC vendors, said King.
King predicts a 13 percent unit growth for the PC industry for 1998. He
attributes a worldwide reduction of four to five percentage points to the
Asian economic crisis. This drop, coupled with a 10 percent drop in the
ASP of PCs this year, will give an overall revenue growth for 1998 of only
1.3 percent, compared with 1997's 6.6 percent growth. King further
predicts 1999 will see a 6.9 percent decline in ASPs and a 6.7 percent
increase in revenue growth.
|
