Let's go to the column . . . .
Herb on TheStreet: Inconsistencies Abound in Marketplace for PCs, and Image Entertainment Comments
By Herb Greenberg
Senior Columnist
12/4/98 6:30 AM ET
Something isn't quite right here.
Compaq (CPQ:NYSE) has been telling analysts lately that its November biz was bright, based in part on anecdotal evidence from the all-important weekend after Thanksgiving. Its data apparently didn't include a check of Tandy (TAN:NYSE), whose 5,000 stores sell nothing but Compaq PCs; yesterday Tandy reported that PC sales for November slipped 19%.
Tandy's experience is borne out by the normally promotional Gateway (GTW:NYSE), which told investors yesterday that its PC biz isn't meeting expectations.
Then there's Apple (AAPL:Nasdaq), whose iMac sales, as this column has reported, appear to be under pressure. Yesterday Morgan Stanley analyst Gillian Munson (who isn't authorized to talk to the press) told her clients that "one disturbing piece of news" was that her "Best Buy (BBY:NYSE) contacts were considerably less optimistic than those at Apple's other channels regarding iMac sales."
She added: "The outlook for December did not look good, and November had been surprisingly weak -- particularly for a new product. Several even noted that actual sales to date were considerably below already downward-revised predictions; most suggested that they were only selling one to five iMacs per week."
She said her contacts blamed the slow sales on "a lack of trained salespeople" at many of those stores.
Perhaps, but maybe something else is at work -- like price. The iMac retails for $1,299, and "there's wicked deflation going on in the PC market," says money manager Jeff Matthews of RamPartners, one of this column's regular sources. Last quarter, for example, U.S. sales for PC distributor Tech Data (TECD:Nasdaq) rose just 7%, much lower than expected. The company said it had lost market share because of the lower-priced PCs.
Meanwhile, a Tandy spokesman blames his company's PC slump on competitors that last weekend advertised $599 PCs; Tandy's lowest-priced machine is $999. "We don't think our marketing message was on the spot," he says. He adds the next three weeks will determine whether its consumers will "migrate" back up to the higher-priced models, and it'll try to convince them to do so with a new advertising campaign that focuses on the expandability and real "value" in the higher-priced machines.
What's clear, the spokesman says, is that a shift to $599 machines wouldn't be particularly good news for retailers, because there's "no gross margin" in it for them.
Meanwhile, based on what companies like Intel (INTC:Nasdaq) have been saying, demand for PC components suggests PC demand is strong. Why the discrepancy? One theory has to do with the shift by Compaq and Hewlett-Packard (HWP:NYSE) to a direct-to-consumer online presence.
"Guys buying direct from Compaq and H-P are taking product that normally would sit in the distribution channel for six weeks," says one hedge fund manager. That creates the illusion of strong sales. But according to this theory, the distributors still have to have enough merchandise to feed the traditional, offline distribution channel. As a result, they wind up double-ordering components, and demand has merely shifted from one distribution channel to another.
The result, if the theory is right: Over the next few months distributors will realize the channel is stuffed, so they'll halt PC orders. That, in turn, will force PC makers to cut back on component purchases, creating a replay of the summer glut. (It makes about as much sense as anything else I've heard.)
Short Positions
Hewlett-Packard, cont'd.: An item yesterday, following an item the day before, noted that while Hewlett-Packard has quietly started selling PCs direct to consumers over its Web site, it wasn't -- unlike Dell (DELL:Nasdaq), Compaq and Gateway -- letting customers customize their orders. However, customization is coming -- or so says Pradeep Jotwani, H-P's vice president of consumer sales and marketing. He says the company has started with kiosks at Circuit City stores, where customers can order customized H-P products. Why is the company so slow to offer customized products on its Web site? "I don't think we're doing it slow," he told me yesterday. "We're doing it right." |
