I think their immediate goal and being a 50 B company in 2000 are in line with each other, that is continue growth, profit, market shares, domination , and being the leader of the computer industry. For the future, the industry will consolidate, just like the AUTO industry.
The small guys left behind can not survive. For the time being, CPQ's immediate goal should be clean up the inventory , implement the BTO business model in its PC business as soon as
possible to reduce the future inventory and reduce the cost of doing business. The future
PC business will be high volume, low profit margin, so inventory control is very critical,
a 1% missed, with CPQ's volume, it means a lot of inventory. So, to keep the inventory small, the BTO model has to be implemented asap.
For the long run, the DEC's merger will give CPQ a major push, as you can see , DEC started to make money consistently starting from DEC of 1996 every quarter, so , I do not think DEC will be a burden to CPQ financially, especially with its more than one billion cash in
reserve. There will be a lay off after the merger (I am sorry to say that), and for each 10k
people laid off, CPQ can save about $1Billion at least, this will be transfered to profit of
every year.
As to the direct sale, it is worked for the consumer PC market, you can just buy a PC , and
connect it with cables with the instruction sheet easily , and the system will work fine.However, for Corp., PCs are linked to each other within an Intranet, For small and medium business, most of them do not have a group to install the systems, so they all
depend on the contractors to offer service. The same for some of the big corp. So, direct sale
will not work for the enterprise.
To be successful in the future you have to be the leader, big volume, so that you set the standard. Just see INTEL, MSFT, they all set the standard for the industry they are in, and no one can compete. Being the volume leader, your cost of BOM reduced significantly also.But, with big volume, the cost control (inventory) being a big and critical issue, as well as
the efficiency of operation (look at IBM).
As to the recent inventory unbalance of CPQ, It is just very common after a hot season
after Christmas, and NEW YEAR, it is just time to clean the inventory and big sales, really
nothing to do with the price war. I do no think there will be a price war in the comming new models. I also do not think the inventory unbalance problem is limited to CPQ only, other
box makers had the same problem. Just look INTEL's announcement, the revenue will be 10% short.The shipment of PCs in 1997 is close to 100 MM units, INTEL had 90% of the world market, so INTEL sold about 90 MM units of CPU ( I assume INTEL's market shares
is not changed ), If I further assume the first Q of 98 , Intel sold 25% of the annual units of
1997 ( it is a slow season for the first Q) , that is 22.5 MM units. If I assume the 10% short of revenue is caused by short of sold units, and no price reduction from Jan to Mar. of 1998,
then INTEL sold 2.25 MM units less in the first Q of 1998. CPQ held .20 MM units of
inventory, then who held the rest ?????
So, inventory unbalance is common to every box maker after the hot season, the difference is
CPQ's distributors released earlier in public and which ha
mmered the stock price in big time.
Another thing I do not quite understand is , there are 20 more days of sale before the book
is closed at the end of March, how can PF know this quarter will break-even? Will we
have a up surprise when the numer real comes ??? |
