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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: davesd who wrote (17458)	3/10/1998 1:12:00 AM
From: David Rosenthal	Respond to of 70976

Dave, The article implied that PII sales were on target. There are a lot of reports lately and some seem to contradict each other. VAR's say their business is strong suggesting that business demand is fine. Compaq is hurting this quarter and the rumor is that they stuffed the channel last quarter. This means that they will not sell as many units until this channel backlog is sold. They also have their own backlog. >>>> Compaq has 20 times more Pentium and Pentium Pro desktop-PC inventory than Hewlett-Packard, and five times that of IBM, according to spot checks of seven distributors' online systems. More specifically, Pentium and Pentium Pro desktop-PC inventory from the spot checks indicate HP has approximately 9,500 units in stock while IBM has 46,000 desktops. Compaq, by comparision, has 200,000 units. >>>> techweb.com The way prices are dropping this means that their unsold inventory has already lost significant value. CompUSA has lower-cost vs higher cost PC sales hurting their margins and I guess they are also stuck with some inventory that is quickly losing value (some courtesy of Compaq). >>>>> Part of the low-cost market's decline owes to the fact that retailers don't market sub-$1,000 PCs as aggressively as PCs in the $1,000-$1,250 price range, CI stated. Sub-$1,000 systems have notoriously low profit margins. >>>>>> news.com As far as Intel goes, if PII sales are OK then the Pentium market was where they were getting hurt, and this is the sub-$1000 dollar market. >>>> Non-Intel-based PCs represented 60 percent of Compaq retail systems and 71 percent of IBM retail systems sold in January. Overall, retail PC unit sales increased 30 percent and revenue was essentially unchanged in January, compared with January 1997, ASW reported. >>>> techweb.com Put these together and it sounds like business demand is fine, consumer demand is OK but it is for low-end PC's. Compaq and IBM are using alternative chips to make the price point and this is hurting Intel. Intel will definitely compete there but it will impact their margins. AMD seems firm about their 25% price advantage over Intel but I think they will end up blinking. They can't afford to bleed much longer and will start to tout their performance advantage. However, they have made advances on their yield problems. news.com Compaq cannot improve their margins till and if they can control their inventory. They also will have to adjust their sales model since they are not selling as much as they would like. To keep consumer computer demand strong you have to decrease prices. How do you keep profits up? You sell more units at cheaper prices. However, this leads to saturation. You are eeking out profits from the end of the demand chain. I think consumer demand is being propped up by lower prices and will ultimately slow down. But there is no current data to suggest a slowdown. So the ultimate question is how will this affect semi-equipment demand? I leave it up to the thread to interpret. Dave