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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Kenya AA who wrote (67026)	8/26/1999 9:37:00 AM
From: Aitch	Read Replies (1) \| Respond to of 97611

Hi all... H LOW-END PC COMPARISON: BIG BRAND NAMES CLOSE PRICE GAP 08:10pm EDT 24-Aug-99 BofA Montgomery (King, Kurt) As part of our Silicon Valley Tech Tour, tonight our in-house technology expert, Steve Linder, will scrutinize the lowest-end consumer PC offerings from Compaq (CPQ, $24, BUY) and eMachines, as well as a corporate desktop system from Compaq. In this note we provide a price comparison of the low-end consumer PCs 3/4 the two vendors are surprisingly close3/4as well as a features comparison and other observations. Key points about the consumer PCs: * Tier One PC vendors are aggressively hitting new pricing lows. * It appears that Compaq, Hewlett Packard (HWP, $106, MPP) and IBM ($122, Not Rated) now offer more compelling value than eMachines at the $499 and $599 price points. (eMachines is the only one of these vendors at the $399 price point.) * Tier One PC vendors are exhibiting more market savvy, especially in the use of rebates. Tier One PC vendors are aggressively hitting new pricing lows. When we reviewed low cost PCs in our May 3 note, the lowest price from any Tier One vendor was $599, matching eMachines' highest (post-rebate) price. Since then, Gateway and Dell* have aggressively reduced their lowest price points while HP and Compaq have matched eMachines' mid-range (post-rebate) price point of $499. (All prices in this note are without monitor unless otherwise stated.) TIER ONE VENDORS HIT NEW LOWS (LOWEST PRICE PC BY VENDOR, MONITOR NOT INCLUDED) eMachines Compaq Hewlett IBM Gateway Dell Packard April 1999 $399* $599 $719 $599 $899 $859 August 1999 $399* $499 $499 $599 $699 $735 * After $50 rebate. We believe that Compaq, HP and IBM now offer more compelling value than eMachines at the $499 and $599 price points. When we evaluated low cost PCs a few months ago, the Tier One price premiums were justifiable but substantial. Now the Compaq costs less than eMachines' most comparable offering after upgrading the eMachine to an equivalent memory level, as outlined in the table below. And, while the offerings from HP and IBM are tougher to compare on a features basis, we believe that Tier One vendors now more than effectively compete with eMachines when considering the quality, service and software differences. Thus, eMachines is now competing on its broader range of configurations available for $499 and $599 and its exclusive $399 price point. eMACHINE eTower 366C COMPAQ Presario 5304 PC Street Price (before $449 $499 rebate) PC Rebate ($50) $0 PC Publicized Price (after $399 $499 rebate) PERIPHERAL PRICES: Monitor $99 $299 Color ink-jet printer $80 $80 (Compaq IJ200) Monitor & Printer bundle $0 ($200) rebate Monitor & Printer after $179 $179 rebates PC, Monitor & Printer $578 $678 after rebates FEATURE DIFFERENCES: Memory 32 MB (upgrade to 64MB 64 MB ?$116)* Monitor 14' 15' Hard drive size 3.2 GB 4.3 GB CD-ROM speed 24X 32X OTHER FEATURE DIFFERENCES: 1 preinstalled ISP. Internet keyboard MS Money ($27) Quicken Basic ($38) Misc. other software Financing program Easy Internet set-up 3 preinstalled ISPs 100 MHz system bus (results in a faster PC; 66MHz is typical). WARRANTY: 1 year replace PC 1 year parts & labor mail-in carry-in SERVICE & SUPPORT: 15 days software 1 year software 7x16 toll call 7x24 toll free DESCRIPTION OF COMMON 366 MHz Cyrix MII processor, 56.6/v.90 modem, floppy FEATURES: drive, CD-ROM drive, 1 year hardware warranty, Windows 98 and MS Works. * Estimated cost to upgrade the eMachine to the same amount of memory as the Compaq is over $106; $66 parts cost and a $50+ labor fee. Tier One PC vendors are exhibiting more market savvy. eMachines promotes its PCs using the effective price paid after a $50 rebate. The result has been a perceived price advantage for eMachines, since Tier One vendor rebates have historically been less consistent and poorly promoted. Last month Compaq adopted eMachines' tactic of promoting post-rebate pricing, advertising a PC for $99.99 (after CompuServe's $400 rebate) and a 15' monitor/color printer bundle ($300 in rebates with a PC purchase) for an additional $99.99. We think all Tier One vendors will quickly follow suit. Note that the benefits of rebates extend beyond pricing perceptions; according to eMachines' management, only about 50% to 60% of rebates are claimed. We estimate that the value of eMachines unclaimed rebates is about 5% of sales. Thus, we would not be surprised to see Tier One vendors emulate eMachines universal use of rebates, if not its tough rebate procedures.