I don't know, ask the thread clown(J-bo), he knows EVERYTHING! Analyst Corner
PC stocks still correct for investors
Growing demand bodes well for personal computers
By Jean Atelsek, CBS MarketWatch
Last Update: 12:53 PM ET Jul 7, 1999
Personal Finance News
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NEW YORK (CBS.MW) -- You may have super-fast DSL service coming into
your house and you may be the world's nimblest Web surfer. But all that's
meaningless without the box on your desk that delivers the goods: your
personal computer.
PC stocks may not have the sizzle of the latest
Internet offerings. But a few of them are well
positioned to take advantage of unprecedented
demand for new machines, says analyst Lou
Mazzucchelli of Gerard Klauer Mattison.
Mazzucchelli spoke with Jean Atelsek of
CBS.MarketWatch about how the big players in the
PC market are faring.
Given the rally in tech stocks, are
personal computer stocks fairly valued now, or
do you think there's some upside left?
I don't look at it on a sector basis, because I think we're way past that. The
tech market tends to do well right now because a lot of the
telecommunication and Internet stocks are driving the market. That's the new
story. There's a lot of froth there. People view the PC sector, when they look
at it on a sector basis, they look at it as yesterday's news.
The fact of the matter is, PC unit demand is very, very high -- in fact it's
higher this year than we had expected going into this year. So, lots of people
are going to be buying computers -- they're going to pay less for them, but
that's not news to anybody, that's just a fact of life -- and certain companies
are doing really well in this environment and other companies are having
problems.
Generally, companies that have nicely focused strategies with good
execution are doing well, and that would include companies like Apple
(AAPL: news, msgs), Dell (DELL: news, msgs) and Gateway (GTW: news,
msgs). And companies that don't have that kind of focus, or (have) other
kinds of distractions, are not doing well, and that would include Compaq
(CPQ: news, msgs), it would include Hewlett-Packard (HP: news, msgs)
although that's not on my coverage list.
IBM (IBM: news, msgs)
is an exception,
because IBM the
company is doing
extremely well. IBM the
PC supplier is not
doing so well. But, you
know what? IBM
doesn't necessarily
care. It's just a small
portion of what they're
trying to accomplish.
So, there really is segregating into the haves and have-nots, and you really
have to look at it on an individual company-by-company basis to understand
it.
Is Compaq really suffering for its failure to develop an
Internet distribution strategy?
The short answer is yes, though it's much more complicated than that. You
know, if they had telephone direct distribution, they could probably do better
too. So it's not just the Internet.
The issue is that ... I think a lot of corporate buyers
are really of the opinion that if they're buying a
desktop PC or a notebook PC, they want to do it
direct. And Compaq has been very slow to embrace
that idea, and in fact still has, in my opinion, a sort of
misguided loyalty to the channel. And I think that's
going to continue to hurt them.
What about Apple?
Apple is doing great. They're doing absolutely great.
The whole company's been retooled in the last 18
months, starting with the board of directors on down.
The new products are selling extremely well, the
pipeline for software and hardware products is full of
interesting stuff. They've got the best operations,
arguably, of any PC company in terms of
manufacturing, inventory flow, and all that kind of
good stuff. They're doing really well... They just need
to keep it up.
And they've still got a corner on the education market?
Substantial share in the education market. And in fact, this year -- it's an
interesting phenomenon -- over the last couple of years there had been some
erosion of their share in education, because a lot of education buyers thought
that Apple was dead and that they had no other choice but to go to
(Windows/Intel PCs). Well, what's happened this last year is, people say
"Hey, this company isn't dead, and I don't want to change and therefore I'm
not going to change." We're just beginning to see that this year, and I think
we're actually going to see share increases in education for the company
next year.
What about Micron, how are they doing?
Micron's having a hard
time, frankly (MUEI:
news, msgs). You
know, the new
management has done
everything they could to
get the company tooled
up to be a world-class
supplier of PCs using
the direct model. The
problem is, not a lot of
people seem to care. They just haven't been able to generate the volume.
They're trying hard, but the longer this takes the harder it gets. And they
really are facing the prospect of a window sort of snapping shut on them.
Now, they're trying to focus on what they call the medium-business market...
That's a highly fragmented market. The bad news is, everyone else is looking
at that market as well. The competition's pretty tough.
Micron doesn't have the throw weight -- they just don't have the bulk -- to do
things like compete on price. So I'm rooting for them, but boy it's tough.
What's the next level for PCs in terms of technology, and
which of these companies stands to benefit the most?
Technology really isn't the issue. We've got too much technology now. The
average user doesn't need a 500 megahertz anything.
So it's really the telecommunications?
Well, yes. The next level is getting more bits per second into the house.
That's a key, and the computer companies really can't do much about that at
all unless they want to go pull fiber-optic cable, which they don't want to do.
Ease of use is another tremendous battlefield. You know, IMac's selling
predominantly because of ease of use and colors...
But you see, the average person still has to know way too much to make
their computer work. Way too much. The bad news is, the computer
companies are making these things more complicated instead of less
complicated. They keep adding features to compete...
It would be great if Microsoft (MSFT: news, msgs), for instance, just started
taking features out of some of their software products. How many features of
Microsoft Word do you actually use? Probably 20 or 30 percent of the whole
ball of wax, right?
And with each revision it's less and less.
Right. And yet the thing gets bigger and fatter and makes you get a bigger
PC. Right? I mean, this is ridiculous. It's a cycle that's just got to stop at
some point. Unfortunately there doesn't seem to be any sign of it abating.
But that's where we are.
Jean Atelsek is personal finance editor for CBS MarketWatch. |
