Big boring boxmakers seek bottoms
A Silicon Investor Highlight
By David Zgodzinski
March 19, 2001
The problem with the PC is that it’s a dinosaur, an old unfriendly design, a business in decline. The PC is trying to do too many things for too many people, and future functional computing appliances will make the PC obsolete.
Or maybe the problem is the opposite. New PCs are too powerful, too good at too many things. When someone buys a new PC they won’t ever need to buy another. LTK007 wrote to the Compaq Thread on March 11. . .
The Presario is too good,imo-i bought one with enough doo-dads to put it above 2.3k cost and i simply will have no need for a new one until it breaks down.Except for tech-heads,i think a lot of people once they hit a presario level(or equivalent) will have no need to upgrade. Techies have a warped view of reality and that is why they are the most aghast at this sudden slowdown.
The PC manufacturing stocks have been dropping for a long time. They were dropping even when telecom infrastructure stocks were still rising. Compaq has been in a slump since the beginning of 1999, and Dell managed to make a new high a year ago but has been dropping back since. A.L.Reagan summed up the computer business in this post to the DELL thread on March 8. . .
PC processor sales suck, and server processor sales suck. Apparently, from other sources, storage sucks. North America sucks, and soon Europe and Asia will suck. HWP, DELL, CPQ, SUNW will consequently suck. (GTW has transcended mere sucking.)
Unfortunately, and I mean this sincerely, investment analysis based on company competitive advantage and industry prospects is for the time being pretty much out the window when the world's economies go into suck mode. Where, when we need him, is H. Ross "Giant Sucking Sound" Perot? Ol' Ross got a little mixed up on the sucking sound - thinking it was NAFTA... try NASDAQ, Ross.
Still, even with all this negativity, the PC stocks can be pretty good trading vehicles that move in recognizable patterns. The big manufacturers are profitable multinational companies, selling at much more reasonable levels versus current profits than many other technology companies. So they can be seen by some as safe havens. For the first couple of months of 2001, Compaq and Dell have held up fairly well as telecom, wireless and other tech sectors did miserably. freeus wrote to the DELL thread on March 15. . .
Wouldn't it be funny to make our money again with Dell as in "the old days"?
Many denizens of the Dell thread have been regaining confidence as the stock firmed up in January. There was even some renewed faith in the stewardship of the CEO of the company. Sig wrote on Feb. 25. . .
In defense of Michael Dell.
1. He said they would grow at multiples of industry rate, and grew greater than 4X
2. He was accused of tanking the stock by selling shares, so he bought 18,040,000
shares ( no use doing things half-way)hehe
3. In January he said revenues would be 8.5 to 8.6 bil and got 8.7bil
4. In Aug unit sales growth was 22%, in Feb it was 42%
5. For the full year estimated sales growth was 30% and actual was 26%
The strength of the stock even surprised some bulls. D. Plen asked on March 2. . .
Why is Dell moving up so strong today, when the Naz is getting walloped?? I can't find any news that would cause such a strong move upstream, bit I don't mind it one bit!
And a few days later on March 6, D. Plen exclaimed. . .
As of 2pm - a 3 dollar day!!!! Haven't had one of those in a blue moon. Much better than the daily beatings we were getting used to!!
Bad news has been hitting the component makers with slowing growth and falling prices. It would have seemed logical for the market to see weak PC demand as the culprit. But there’s also an upside for the boxmakers in the downside for the component makers. The balance of power shifts from time to time. PCSS wrote on March 5. . .
INTC cutting chip prices on P3s & P4s
hdl wrote the following day. . .
dell will be helped by drop in prices of intel chips
Elwood P. Dowd wrote to the Compaq thread. . .
DELL flying again today. DELL now within 6 points of INTC. I'm not certain what's going on here. Can CPQ move much higher without INTC moving higher? Are we seeing a complete shake up of what has been the norm for years?
And t2 wrote to the Dell thread. . .
Intel cutting prices on chips will be felt first by Dell. Of course lower prices may stimulate demand. It depends upon how fast PC prices are falling versus the component price cuts. The downturn on Dell started when prices on components had firmed up and stocks like Micron were soaring to high levels.
Dell has been lowering prices and gunning for increased market share in PCs. The company has also been setting its sights on the higher-margin products like servers and storage, marching in with lower-priced offerings than the entrenched leaders. The bulls see Dell’s direct sales and manufacturing efficiencies as a juggernaut that will continue to conquer.
But there are still the occasional discouraging words heard on the thread. Tony Viola pointed out on March 10 that Dell’s power in PCs doesn’t guarantee that other segments of the computer business will follow like dominoes. . .
I know they'd love to move up the food chain but don't have the technology IBM and Compaq do. Dell is kicking butt in PCs. Well, as much as you can in the environment we're in. Long term, I think the others' technology investments pay off. Looking at the bigger picture, who's the nitwit, the company that thinks they can survive in some of the most complex products in the world with very low R&D expended, or the other two companies?
And GVTucker warned that even the stocks of great businesses may not do well if they’re in the wrong industries. . .
Even if DELL has a competitive advantage, that does not necessarily mean that the stock should be fine in the long run. Archer Daniels Midland has a competitive edge in its niche, and yet the stock has returned zero for a decade.
Dell may gain PC market share at the expense of weaker competitors who get hurt worse in a slowdown. But will the PC industry become so unglamorous that relatively steady profits just don’t get investors interested? Could it get as dull and commodity-like as the soybean squishing business?
Where the Dell thread has been more inclined to sunny Austin optimism, the Compaq thread has a tradition of humid Houston pessimism. For weeks, the Compaq thread has been on warnings watch. Many of the bulls nervously expected the worst. Considering the stream of bad news from the other boxmakers and their analysts, they weren’t buying Compaq’s sanguine views of the current conditions. On Feb. 28, Andreas broke the news to the thread about Gateway. . .
GTW to restate last 3 quarters!!!
Now the real story will come out as to why Ted Waite is back at the helm. Apparently, GTW is going to restate earnings for the last three quarters!! Look out below Gateway! And we were told the ceo wanted to spend more time with his family. Yea right.
Captain Jack discussed Gateway’s “Country Store” retail model. . .
PC margins are too low to support stand alone stores without tremendous volume. In addition they would require boat loads of peripherals and tons of service $$. Sadly the walk in traffic will not be there. The overhead will eat them alive.
Elwood P. Dowd hoped. . .
Hopefully the problem is more GTW specific than pc sales slowdown related. Sounds like somebody hosed up the books.
But then the news took a noncompany-specific turn for the worse. On March 6, John Koligman wrote to the Compaq thread. . .
That Intel I bought last week at the 28 level in a post to Elwood was sold this morning at 32 and change. Two news items today that look to have caused it to tank at end of the day:
He cited a Wit SoundView analysis lowering third-quarter estimates for Intel and then there was a story that Intel’s guru Andy Grove didn’t see any quick upsurge in PC sales on the horizon.
A couple of analysts got the message. On March 7, Andreas wrote. . .
CSFB issued a negative report on pc companies this morning and claimed they will drop 15-20% from current levels. They also cited negative pc growth for 2001!!!
He added in a subsequent post. . .
CSFB also said that near term pc companies are dead money. Dell is only buy according to them. Take it for what its worth but just another example of someone coming out of the woodwork the moment compaq shows signs of life.
Sure enough, on March 8, PCSS broke the news. . .
INTC warns
Andreas was losing patience. . .
CPQ - WARN ALREADY!!!! What the Hell are you waiting for Michael Capellas? It is clear that your earlier guidance is way off base. So fix it and quit dragging this nonsense out!!!
Where Dell bulls might have seen bad news for Intel as good news for Dell, the Compaq thread wasn’t so sure. John Koligman remarked. . .
Intel mentioned in it's warning that it is now seeing a slowdown in server chip sales. Can't bode well for Compaq...
But there was still no warning, no clearing of the decks, no flushing of the toilet. profile_14 did some investigation on March 14. . .
I spoke with CPQ Investor Relations yesterday and they said that their first quarter is very back end loaded, and given that they were only one week into the 3rd month, it was too soon to tell what might come about, although they were holding steady despite earnings estimates having come down to 19 cents on average for the quarter.
It was a morbid game. Good news was bad news and bad news wasn’t bad enough. tonyt wrote on March 14. . .
With the experts downgrading CPQ, why has only 900,000 shares traded so far? Why aren't these brokers and their clients selling at any price? Why is CPQ down only 3c????WHERE'S THE CAPITULATION!!!!
The Compaq thread brought to mind the story about the sadist and the masochist. The masochist pleads, “Beat me, beat me. Please beat me.”
The sadist replies “No.”
But finally the whip cracked. Andreas wrote just after the market closed on March 15. . .
Compaq warns and lays off 5000 and is halted!
Now that they knew what to expect, with all the bad news out (for now), the bulls felt a little safer. kakamongus wrote. . .
Who isn't warning in this environment? For me it's "yea...tell me something that isn't expected!" If past tech warnings the last two months are any indication, the sell off will not be to bad. How much lower can CPQ go?
The day following Compaq’s profit warning and layoff announcement, the stock finished down only 50 cents on a nasty triple witching sell-off. Dell was down by the same amount. The boxmakers are inching their way down closer to the bottom.
Discussion Threads
Compaq
DELL
SI Members Featured
LTK007
A.L.Reagan
freeus
Sig
D. Plen
PCSS
hdl
Elwood P.Dowd
t2
Tony Viola
GVTucker
Andreas
Captain Jack
John Koligman
profile_14
tonyt
kakamongus
David Zgodzinski is an ex-petroleum geologist, ex-stockbroker, ex-machinery broker and ex-journalist who now reads the threads for a living. His company, Market-Animals Ltd., started publishing online stock market information in 1989.
Are there some new developments on your thread? Radical personalities? Hot New technologies? Takeovers? Scandals?
Please let us know. All stories are welcome.
Dave Zgodzinski |
