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

To: Stitch who wrote (4339)	12/18/1997 9:35:00 PM
From: Gus	Read Replies (1) \| Respond to of 7841

Stitch, ....Channel assembly could mean very good things for those drive makers that understand they need to change their approach to distribution and OEM relationships. It will become critical for the drive makers to begin to look at the manufacturing channel and design programs and services to accommodate channel assembly in 1998. One of the key advantages of channel assembly is that it assembles the product closer to the customer--and after the decision has been made as to exactly the configuration that's needed. In order for this to work well, however, the ability to manage the logistics of sub-assembly inventory handling is key, as is the ability to switch in or out product by other suppliers when shortages occur. So the challenge for the drive makers is growing more complicated. They will need to stock reseller shelves with non-shrink-wrapped product, for starters. To be successful, they also need to negotiate terms with both the brand holders--Compaq, IBM, HP--as well as the channel players. The key here is to be the drive maker of first choice and, where that isn't the case, have programs and stock that put it first in line when the competitor is out of stock. Drive makers may gain an edge in this scenario by addressing compatibility issues for resellers through testing and bug fixes up front... crn.com Everything I have read suggests that the transition to BTO/CTO will take about a year to complete. It is no surprise that the top 5 PC makers, which are growing much faster than the market, are the most aggressive players. In the 3rd quarter, HWP grew 68% YOY, CPQ grew 53% YOY and Dell grew 52% while the overall PC market only grew 16% YOY. I think Compaq and HWP are the most aggressive BTO/CTO players. Compaq is trying to reduce its total PC inventory (in its own warehouses and in the distributors) from around 70 days to 14-21 days. I think it is currently at around 35-40 days. I don't know too much about HWP's progress but I think it is reasonable to assume that as a top tier PC maker moves toward its targeted inventory model, one can expect the drive makers to adjust their build plans and inventory levels accordingly, if they haven't done so already. In the distribution channel, I refer you back to the Lehman numbers: Desktop - ~13 weeks Enterprise - ~10 weeks The big question mark really is how much inventory has piled up in the warehouses of the PC makers who are making the transition to BTO/CTO. I suppose we will just have to watch how fast PC prices will fall in the next few weeks to get some idea while waiting for the actual numbers to come out during earnings season. Regards, Gus