Set-Tops, HP Pavilion At Root Of SCI Shortfall
Sep 14, 2000 (Tech Web - CMP via COMTEX) -- Delays in set-top box components
and an apparent pushout in orders for Hewlett-Packard Co.'s Pavilion PC line
will drag down SCI Systems Inc.'s revenue for the current quarter, executives
said.
On Wednesday, SCI (stock: SCI), Huntsville, Ala., reported that revenues for the
current first quarter of fiscal 2001 would fall short $300 million of the $2.3
billion the company expected.
President and chief executive Eugene Sapp said that roughly 70 percent of the
shortfall was tied to lower demand in the set-top boxes, while the other 30
percent was confined to the PC space.
SCI executives said the bulk of the shortfall was tied to shortages in the
components used to manufacture set-top boxes, mainly the centralized ASICs those
customers were supposed to ship to SCI for assembly.
Five significant set-top box projects have been delayed, Sapp said, including
projects in Europe and the United States.
"We do see some season-related softness, especially in consumer-related
activities," Sapp said during a conference call. "We're not talking about losing
business, we're talking about demand."
The PC sales shortfall will work out to be about $80 million, the "bulk of
which" will be tied to HP's consumer Pavilion PC, acknowledged Jim Moylan, SCI's
chief financial officer, on Thursday.
"I'd characterize it as a pushout in orders," Moylan said. "Who knows what's
going on? There's always something going on in the channel. I will say that [HP]
should have a nice upside later in the quarter."
Analysts also noted that Hewlett-Packard (stock: HWP), Palo Alto, Calif., might
be distributing its supply of components on allocation, such as DRAM, across the
entire company.
A spokesman for HP in Cupertino, Calif., declined to comment, stating that he
was not familiar enough with the company's manufacturing operations.
HP's order delay probably translates into 100,000 fewer units that the company
will sell during this quarter, said James Poyner, analyst with C.E. Unterberg
Towbin in New York.
"That's relatively chump change," he said.
Still, the shortfall could have an impact on HP's sales ranking. During the
second quarter, HP recorded a 35 percent increase in worldwide PC sales compared
to 1999, edging out IBM Corp. (stock: IBM) for the third spot in PC sales with
2.259 million shipments, according to International Data Corp., Framingham,
Mass.
IBM sold 2.253 million units. In July, HP sold 32.9 percent of all U.S. PCs in
retail, according to PC Data Inc., Reston, Va., second only to Compaq Computer
Corp. (stock: CPQ), Houston.
Sapp said the fall quarter is typically "back-end" weighted so that about 50
percent of SCI's sales occur in September. After reviewing two weeks' worth of
September sales data, he said, he felt it necessary to issue the warning.
Sapp said the company is not being affected by tightness in the flash market,
but that the persistent 30- to 50-week lead times for capacitora and other
passive components were disappointing.
"We're not having significant problems with DRAM at this point," Sapp added.
"DRAMs are at equilibrium as far as we're concerned."
However, because of SCI's diverse customer base, Poyner warned that investors
shouldn't read too much into the SCI warning as an indication of PC demand.
Other analysts also said that, so far, the third quarter is behaving as
expected.
"What we've seen pretty good demand and a pretty good first half," said Roger
Kay, a PC analyst with IDC. "There's usually a pickup in the third quarter. In
that sense, the third quarter is looking pretty normal."
techweb.com
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