CFOs are from Mars, analysts are from Venus
December 11, 2000 12:00 AM PT
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Healthy worldwide PC market despite lowering expectations for the U.S. and Europe
Worldwide PC shipments are expected to reach 40.15 million units in the fourth quarter, according to recently released forecasts from IDC. This represents growth of 19.6 percent vs. the fourth quarter of 1999, and sequential growth of 19.8 percent from the third quarter of 2000.
-- IDC press release, Dec. 7
World slowdown to blame, Intel says
Chip giant Intel today joined the litany of other companies warning that revenues will fall short of expectations, citing a worldwide economic slowdown and the slackening demand for personal computers.
-- UpsideToday.com, the same day
I don't get it. I really don't. Has the world of market research and financial accounting gone crazy?
PC sales are actually doing fine, despite the fact that Apple (AAPL), Compaq (CPQ) , Dell (DELL) and every other PC maker in the alphabet seems to be suffering. OK ... Intel (INTC) sells the overwhelming majority of microprocessors that go into personal computers, and yet as PC shipments grow nearly 20 percent this quarter and nearly 17 percent next year, Intel's revenues are flat.
I think that alien beings must be manufacturing their own PC clones and flooding the market. It's the only explanation.
It's bad enough that original market research on Wall Street seems to have gone out of fashion with fur coats. Both the New York Times and UpsideToday have commented on this recently. (See "Hey analysts, try analyzing for a change.")
If you doubt it's true, look at this example: Apple Computer made its second announcement of disappointing earnings this year, after the close of trading on Dec. 5. (See "Apple reports soft sales, lowers expectations.") Wall Street was caught with its Armani pants at the knees. Those investors who were caught holding Apple's shares at about $17 at the end of the day on Dec. 5 woke up the next morning to see the stock open at a little over $14.50, where it has stayed since.
According to press reports, the consensus among Wall Street analysts until last week's warning was that Apple should have revenues of $1.6 billion the first quarter of its 2001 fiscal year. That quarter ends this month.
The suspect source
Where did the Street get that figure from? It was spoon-fed to them by Apple in its Oct. 18 earnings announcement, when Apple CFO Fred Anderson said: "We are resetting our revenue estimates for the December quarter to about $1.6 billion and are targeting a slight profit." No one lowered their revenue projections to $1 billion until Apple told them to do so on Dec. 5. That's a 37 percent decline in already lowered estimates, folks.
I think the performance of Wall Street analysts is bordering on criminal neglect.
But even when we do have data, such as the IDC report, it seems to resemble reality about as closely as a David Lynch film. I've sent a query to IDC to ask why everyone is suffering in this strong market, but was unable to get a response on Friday.
This is the Internet Age, the age of information. So here's a simple question: Where have all the Apples gone?
I pick on Apple simply because its decline has been so precipitous, so sudden after such a meteoric rise. Hey, wait a minute. Don't meteors fall to earth?
Apple certainly has. So I decided to see if anyone was noticing this decline in sales. I checked with OneChannel.net, which measures product sales at e-commerce sites. You can buy this data if you're interested.
What I got from OneChannel is a list of numbers of weekly sales of Apple computers through a sampling of websites. I would not call this sampling statistically significant. OneChannel only measures third-party retailers, not sales through Apple's own site. But it might show some general trends. It had put out a press release saying its data had already showed a decline in Apple sales, which I wrote about before. (See "Don't surprise Wall Street.")
This time, the company gave me actual revenue figures for Apple products at the sites it measures, instead of a normalized curve. Sure enough, the figures really do show a steady decline in Mac sales, starting last April. (See graph).
Interestingly enough, sales through these websites have actually declined much faster than the revenues Apple has recorded. For Apple's fiscal Q2 and Q3, ended March 27 and July 1, respectively, the revenues OneChannel measured were both about 3.5 percent of Apple's revenues in those quarters. But for the September quarter, OneChannel saw a decline of 24 percent from the previous quarter, while Apple's own revenues rose to $1.9 billion from $1.8 billion the previous quarters. Suddenly, OneChannel was only picking up revenues equivalent to 2.4 percent of Apple's total.
Man, this is getting weird.
For the current quarter, OneChannel has data through Dec. 2, or nine of the 13 weeks in this quarter for Apple. If I extrapolate out, assuming there is no Christmas uptick in Apple's sales, but that they keep oscillating around a flat line, as they seem to have been doing since the end of July, I find one other interesting thing. If Apple's revenues do come in at about $1 billion, One Channel will have again measured revenues that total about 3.5 percent of Apple's actual revenues.
I guess that means that we don't have a big enough sample to get a real correlation. Note that OneChannel is actually measuring less than 3.5 percent of the units Apple sales, because it is measuring retail revenues, while Apple's revenues are wholesale. But it is strange, isn't it?
Just for the record, if we could use the 3.5 percent figure, Apple's revenues should have been about $1.3 billion in Q4, not the $1.9 billion reported.
Sales dip
In general terms, though, OneChannel did show a decline that began back in April. Considering what was going on in the market at that time, it might have warned us that something was not right in Cupertino.
How did OneChannel do measuring other PC sellers? During December 1999, the company measured sales of nearly $83 million from all manufacturers. Then sales dipped in January and February to $64 million and $65 million, respectively. From March through June they hovered in a range from $72 million to $83 million. Since then, they have been drifting down, with a bump or two, ending in October at $59 million and November at about $52 million.
A real slowdown
Yes, Michael, there is a slowdown in PC sales. It may not be as bad as OneChannel's numbers indicate. Maybe people are moving to real stores instead of relying on the commerce sites this close to Christmas. But this is an actual decline in revenues throughout the year, not sequential increases of 20 percent (or 11 percent for consumer purchases) seen by IDC.
Oh, let's split the difference. Sales are flat and Intel is the one company telling the truth. The inventory buildup in the channel may be making a difference, because OneChannel is measuring actual sell-through to consumers, while PC makers may be measuring sales into the channel.
And here's my wild guess on Apple Computer, based on the online sales trends. Since Apple's online sales through third parties have leveled off, not continued to decline, I'll predict that Apple will surprise Wall Street this quarter with revenues of $1.45 billion. Of course, by now, you've probably realized that I haven't really got a clue.
After all, I'm from Jupiter.
"Imagination is more important than knowledge"
-- Albert Einstein |
