Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Kai-Uwe who wrote (8517)	11/4/1997 7:15:00 AM
From: William Hunt	Read Replies (3) \| Respond to of 97611

TO ALL THIS DEFINTELY APPLIES TO COMPAQ AS WELL - VERY GOOD ARTICLE ON THE BOTTOM LINE OOL ON THE HILL An Investment Opinion by Randy Befumo The Cost Side of the Equation Speculation that Southeast Asian market turmoil will lead to a full-blown economic slowdown has impacted personal computer manufacturers. DELL COMPUTER (Nasdaq:DELL - news) has been one of the hardest hit by the worries, slumping 16.2% over the past thirty days. The potential of ebbing demand in South Korea, Malaysia, Indonesia, and Hong Kong had many speculating last week that Dell did not have a shot at exceeding third quarter estimates of $0.65 EPS. While it is stupid to base an investment on the prospects of a company exceeding arbitrarily concocted quarterly estimates, those who have been worrying about demand for personal computers have apparently not been paying that much attention to the cost side of the equation. With component prices having gone haywire. The computer industry has seen substantial price declines in memory, flash memory, hard drives, and central processing units. The spot price of 16-Megabit (Mbit) DRAM is down more than $1 from late August's $5.90, a dizzying 17%-plus decline. With Dell only holding 11.2 days of inventory as of August of 1997, the company has to have captured some incremental benefit from this unexpected drop. Because eight 16-Mbit DRAM go into one 16 megabyte (MEG) of RAM, Dell's benefit from falling memory prices is magnified eight-fold if the company uses 16-Mbit devices. Given that Dell has no specific allegiance to using 16-Mbit units over 64-Mbit units, the company is sure to take whatever is cheapest in order to squeeze out the incremental dollars of operating profit. For a standard 32 MEG configuration, Dell spent approximately $16 less this quarter than it did last quarter. The perils of flash memory production are best illustrated by INTEL CORP.'S (Nasdaq:INTC - news) recent decision to push-out construction of a flash memory wafer fabrication plant from 1999 to 2000 as a result of declines in average selling prices. Although spot prices for flash memory are not as easy to find as spot prices for plain vanilla memory, prices have been slumping almost as quickly. Build in the assumption that Dell captured a few bucks per PC on flash memory, depending on what the system configuration shipped was. Add to this few bucks the fact that average selling prices (ASPs) for the disk drive makers have been plunging as well, accelerated by last quarter's production disaster at SEAGATE (NYSE:SEG - news) . ASPs at WESTERN DIGITAL (NYSE:WDC - news) were already off $13 from March of 1997 to September of 1997 before the glut hit the market in mid-September, suggesting that ASPs could get as low as $160 in the current quarter. Chalk up another $10 or so per system, again dependent on the specific configuration. Last, but by no means least, is Intel's almost ferocious assault on ASPs as a means of choking off AMD (NYSE:AMD - news) and the combined team of NATIONAL SEMICONDUCTOR (NYSE:NSM - news) and Cyrix. With sub-$1,000 PCs flying off the shelves, Intel has had to nail down prices on Pentium-class chips to bargain basement levels in order to have an offering in this fast-growing market. Although this has put pressure on Intel's extremely high gross margins, companies like Dell have been net beneficiaries as they have reduced costs and increased volume. The last price cut Intel put through was in July when it slashed prices on the high-end central processing units (CPUs) that Dell sells anywhere from $106 to $1,110 per unit. All of this adds up to about $30 in non-CPU component declines in the past two months and at least $100 in CPU declines since July, much of which was not fully reflected in the August quarter. The last time Dell saw component prices in freefall was early 1996 when the company began aggressively discounting its products. With today's press release detailing price cuts of as much as 20% on the company's Optiplex line of desktop PCs and some of its laptops, history again appears poised to repeat. Dell's operating margins shot up from 6.84% to 8.88% during last quarter -- without the sustained price deflation on CPUs. Combined with the launch of the workstation product and the growth of the server market, the conventional wisdom that Dell's operating margins have nowhere to go but down is patently wrong. Although Dell has begun to aggressively slash prices, the company will have a rough time keeping up with the sustained demand for its components -- particularly as it continues to work its way up the value chain. Short term, Dell seems the most likely to benefit from the fall in component prices. Despite COMPAQ COMPUTER'S (NYSE:CPQ - news) awesome efforts on the inventory management side, the company still had 17.2% more days of inventory than Dell as of its fiscal third quarter, reported on October 16. With NEWCOURT CREDIT GROUP (NYSE:NCT - news) calling the growth in Dell's leasing program "exceptional," this does not seem to be a weak spot. Newcourt's Chief Financial Officer (CFO) was unable to give specific numbers, but stated that 20% or greater of Dell's sales should come from leasing within the next 12 months. Combined with $3 million a day in sales from its website and continued market share gains according to the recent International Data Corp. data, the recent Southeast Asian blip may be best remembered in a few months as a belated buying opportunity. BEST WISHES BILL

To: Kai-Uwe who wrote (8517)	11/4/1997 11:50:00 AM
From: ed	Respond to of 97611

Intel should maintain two product lines to fit the needs of different customers, that is P II to fit low to middle end users, and Mecede to fit medium to high end users. By such arrangements, INTC can catch up all markets without further degrading its profit margins and at the same time it will benefit the box makers!!!! sO, i HOPE IN THE COMMING NEW product announcement, INTC will not say Mecede is a replacement of PII family, but a new series of products will go in parallel with PII. Of course the pricing strategy will be different for both, i.e low to high end PII , pricing from $90 to $300, and Low to high end Mecede , pricing from $400 to $800 for sophisticated users. The $90 will fit the sub $1000 systems, the $300 will fit individual users which need more power and will like to pay little bit more for that power. INTEL should set up similar strategy for the sub $1500 note book systems. By such arrangement, we will say bye bye to AMD earlier !!