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

To: peacelover who wrote (17885)	2/22/1998 6:09:00 AM
From: KAD	Respond to of 97611

Peacelover & Thread: Some data on Channel Distribution (more positive for HP short term?) Kenneth and other Hawaiians you need to be in Brazil this weekend - Carnival is in full swing and one can "easlier" be patient with Compaq's near term performance: Insights from the PC Distribution Channel 06:07pm EST 19-Feb-98 Salomon Smith Barney (GARDNER) --SUMMARY:------------------------------------------------------------------ Three of the largest wholesale distributors of PC products, Ingram Micro, CHS Electronics and MicroAge, reported earnings yesterday. The dominant theme was the strength of the European PC market. Comments by MicroAge confirmed that Hewlett-Packard is the only indirect vendor which has begun the process of reducing channel inventories and price protection. In general, however, inventories appear to be in relatively good shape with these three distributors. *MicroAge cited very good year to year revenue growth of 25% for the month of February. --OPINION:------------------------------------------------------------------ Three of the world's largest wholesale distributors of PC products reported earnings yesterday. These channel players are a key source of information regarding general PC demand conditions. The following are highlights from each conference call. MICROAGE MicroAge (NASDAQ: MICA) is the third largest wholesale distributor of PC products in the U.S. market. The company cited weaker than expected sales during the last two weeks of January, but said that February sales are up 25% year to year thus far. MICA posted a loss for the quarter because it chose not to participate in inventory buy-in deals offered by CPQ and IBM. This decision was motivated by MICA's desire to prepare for the impending reduction in channel inventories and price protection to 15 days. However, it left MICA unable to compete with other distributors on price and lacking sufficient product to satisfy customer demand during November. Judging by comments from MicroAge management during its conference call, MICA learned a hard lesson this quarter. We suspect that the company will not voluntarily pass on any future buy-in opportunities; therefore, the discipline to begin reducing channel inventories will have to come completely from the PC vendors themselves. According to MicroAge, Hewlett-Packard is the only indirect vendor currently moving aggressively to reduce channel inventories and price protection. This could grant Hewlett-Packard a short-term cost advantage over Compaq and IBM. MicroAge ended January with 49 days (7 weeks) worth of inventory versus 35 days (5 weeks) at the end of October. However, management commented that inventory levels have since declined and should be back to more normal levels before the end of April. CHS ELECTRONICS CHS Electronics (NASDAQ: CHSE) is the third largest wholesale distributor of PC products in the world. The company operates exclusively outside the U.S. and is the largest wholesale IT distributor in Europe and Latin America. CHS reported very strong growth in the European market in local currency terms. The company cited the U.K. as the strongest country in the region, but also saw strength in France and Germany (Germany represents 25% of total revenue). Same store sales were up 28% in Western Europe on a constant currency basis. CHS held an average of 32 days (4.5 weeks) of inventory during the December quarter, down from 37 days (5 weeks) in the prior quarter. INGRAM MICRO Ingram Micro (NYSE: IM), the largest wholesale distributor of PC products worldwide, reported 44% year to year revenue growth and 106% year to year earnings growth during the January quarter. Revenue growth was strong across all geographic regions, with the U.S. up 50% year to year, Europe up 48% in constant currency and other regions up a combined 29%. Management said that the it has seen a pick-up in demand in the Europe. Ingram Micro ended the quarter with 45 days (6 weeks) of inventory, the lowest level of inventory since the third quarter of 1996. KAD