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Wednesday December 16, 8:02 am Eastern Time
Company Press Release
Future Looks Bright for PC Industry, Says Deloitte Consulting PC-CITE Report
Optimism Attributed to E-commerce Shift, Apple's Rebound and Fizzle of Asian Crisis Impact on PC Makers
SAN JOSE, Calif.--(BUSINESS WIRE)--Dec. 16, 1998-- The future looks bright for the personal computer (PC) industry, according to the PC Critical Industry Trend Evaluator (PC-CITE) report released Wednesday by Deloitte Consulting's High Technology Group.
The PC-CITE report, which covers the third quarter of 1998, indicates that short-term optimism is at a five-year high. This finding is supported by the 30 percent increase in the report's Expected Performance Index (based on the forecast for short-term cash flow return on investment) after declines for the previous two quarters.
''The stock market is already beginning to reflect this optimism with stock prices of major PC makers outperforming similar businesses (software, semiconductors, semiconductor equipment and peripherals) by 4 percent/a in the last three months,'' said Charles B. Goldenberg, partner in the High Technology Group of Deloitte Consulting in San Francisco.
''In fact, this optimism validates the findings of last quarter's PC-CITE report. We are now coming into the long-term optimism predicted in the PC-CITE Q2 1998 report, resulting in this increase in short-term expectations for the PC industry.''
The PC-CITE report attributes the optimism to significant changes in the PC industry, including a shift to new channel strategies, primarily e-commerce, Apple Computer's rebound and the realization that the Asian Crisis is not going to greatly impact the PC industry, indicated Goldenberg.
Long-Term Optimism Also Near its Five-Year High
The PC-CITE Hope Index, a measure of investors' long-range expectations, has maintained a ratio near its five-year high reached in the second quarter of 1998. In fact, long-term expectations for every PC maker in the PC-CITE report have increased from two years ago.
Optimism for Apple is the single biggest contributor to the increasing trend in the Hope Index. Apple has rebounded with its introduction of the iMac, surprising Wall Street and capturing the imagination of PC consumers, according to Goldenberg. This renewed optimism has moved the proportion of Apple's value derived from future investment and performance from zero in 1996 to 40 percent today, according to HOLT Value Associates.
Increased Gross Margins Show New Strategies are Working
The Gross Margin Index increased by more than 13 percent, which nearly returned it to its five-year high. Goldenberg said, ''This up-trend is the result of the PC industry making significant changes very quickly, including taking advantage of the e-commerce explosion, streamlining inventory operations and bringing exciting new products to market. These shifts in the way PC makers do business have helped it rebound from the doom-and-gloom of earlier this year.''
''It also helps that the Asian flu appears to be a case of the sniffles for the PC industry. In fact, growth projections for 1999 PC shipments in the Asian market indicate that it will pass up the European market,'' he said.
''To put that into perspective, Europe is expected to surpass the U.S. as the fastest-growing PC market in 1998, so the projections for an even larger Asian market indicate additional optimism for the U.S. PC industry.'' (IDC's report dated 10/29/98 estimates 1999 growth of 17 percent for the Asia Pacific market, excluding Japan.)
Hybrid Channel Strategies Make for Leaner, Meaner PC Industry
''Adopting new channels, most notably e-commerce, has also contributed to a leaner, meaner PC industry,'' Goldenberg said. ''In the past quarter, PC makers have made major shifts in their inventory management, including a streamlined production output, filtering more product through the supply chains and utilizing enterprise software programs to manage the flow of inventory.''
''Despite the complexity of managing and integrating multiple sales channels, PC makers are continuing to prove that they can respond quickly to market demands while managing their inventories across the supply chain,'' he said.
PC-CITE's Combined Inventory Index for PC manufacturers, distributors/dealers and component suppliers showed a substantial inventory decrease of nearly 18 percent this quarter. PC makers, in particular, also showed substantial increases in sales resulting in the manufacturers' combined inventory-to-sales ratio declining from .21 (Q2) to .16, close to its five-year low.
''The Combined Index is a snapshot of the PC industry as a whole. This decline is good news for the PC manufacturers and shows that the supply chain is healthy,'' Goldenberg added.
The shift in inventory management strategies indicates that a new hybrid of distribution is emerging. ''Everyone in the chain is finding a new way to be profitable. Many players are developing a hybrid distribution model that combines the best of direct and channel sales in a multitude of venues, with e-commerce being the fastest-growing venue,'' Goldenberg said.
''Others will stick with the tried and true, but with a twist, such as selling direct online in partnership with a distributor or retailer. The bottom line is that all the PC makers are getting better at controlling their inventory levels.''
PC-CITE's Supplier-Manufacturer Inventory Index, an index of suppliers' inventory ratio relative to that of manufacturers, increased by nearly 8 percent this quarter with manufacturers reducing their inventory levels even faster than suppliers.
Goldenberg said, ''This index reflects the aggressive streamlining of inventory processes by the manufacturers, coupled with the price reductions made by component suppliers, particularly Intel Corp. [Nasdaq:INTC - news] and Advanced Micro Devices Inc. [NYSE:AMD - news], which drove this drop in supplier inventory levels.''
About PC-CITE
PC-CITE, a quarterly report from Deloitte Consulting, tracks the PC industry based on financial data from PC manufacturers, component and peripheral suppliers, distributors and retailers, as well as stock market indications (or indicators) of investor expectations.
The report highlights trends resulting from six key indices: Gross Margin Index, Combined Inventory Index for PC Manufacturers, Distributors/Dealers and Component Suppliers, Channel-Manufacturer Inventory Index, Supplier-Manufacturer Inventory Index, Expected Performance Index and the Hope Index.
The Expected Performance and Hope Indices are provided by Deloitte/HOLT Value Associates, a joint venture of Deloitte Consulting and HOLT Value Associates. In combination, these indices present a snapshot of the PC industry. The Q4 1998 PC-CITE Quarterly report will be available in March 1999.
About Deloitte Consulting
Deloitte Consulting is one of the world's top management consulting firms, providing services to transform an entire enterprise -- strategies, processes, information technology and people.
It offers clients a very different approach, because its highly respectful, flexible and collaborative working style gives the company an unmatched ability to transfer knowledge and skills and generate employee buy-in.
In addition, the company focuses on the realization that changing business processes is necessary to achieve the promised returns from strategy and technology.
Its approach enables the company to deliver very different results -- results clients can count on because they can trust their performance improvements will not unravel once the company leaves, results they can build on because these improvements make their organization more robust and adaptable to future shifts in the environment.
Deloitte Consulting is an integral part of Deloitte Touche Tohmatsu, a global leader in professional services, offering consulting, audit, tax and related services to clients worldwide.
Deloitte Consulting. A very different approach. For very different results.
For a copy of the complete PC-CITE Report, call 408/993-4300 or E-mail requests to hightech@dttus.com. Interviews and graphical representations of the indices are available upon request by contacting Teri Bruno at 714/536-8407 or teribruno@aol.com.
(a) HOLT Value Search, 11/27/98
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