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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Eddie Kim who wrote (36638)	4/4/1998 9:21:00 AM
From: James Fink	Read Replies (1) \| Respond to of 176387

Once again, Eddie, I want to commend you on the great article regarding DELL's earnings downgrade. You are a real value to this thread! After reading the following article in Barron's about sub-$500 PCs, I am convinced more than ever that my DELL short will be very, very profitable. DELL's profit margins are quickly evaporating: The Rise of the Under-$1,000 By Eric J. Savitz Deflation is alive and well and living in Silicon Valley. The big story in the PC industry this year has been the rise of the sub-$1,000 PC. The trend has caused all kinds of trauma for companies like Compaq, Intel and CompUSA; it has also helped fuel the current mania for Internet stocks. The more cheap PCs sold, the more eyeballs gazing on Yahoo!, buying books from Amazon.com and booking airline tickets on Preview Travel. Or at least that's the theory. In any case, the industry is gearing up for the next round of PC price compression, and it will be a doozy. By Christmas, you should be able to buy a perfectly useful PC for $500, or maybe less. The PC makers, including market leader Compaq, have been pressuring their parts suppliers to bring costs down low enough to get retail prices on entry-level machines to $500. And it's no pipe dream. Already, you can find some no-name clone makers offering boxes in that price range, not counting the monitor. In last week's San Jose Mercury News, for instance, a little outfit called Hi-Tech USA was offering a system using a 180-megahertz Cyrix processor, with 16 megabyte of memory, a 2 gigabyte hard drive, a 16X CD ROM and a 33.6 kilobits-per-second modem for $498. It's only the beginning. The accelerating price declines have interesting implications for both disk-drive and microprocessor manufacturers. Both segments should see increasing volumes as the entry-level price point for personal computers continues to crumble. And at the same time, both will suffer thinning profit margins as they struggle to meet the escalating pricing demands of the PC makers. The desktop business, which accounts for the majority of the industry's unit volume, has been slowly working through a serious oversupply problem. Sanders expects the pressures to ease a bit over the next few months as PC makers launch new high-end systems. But the push by PC makers to get $500 boxes by Christmas is going to take a toll, Sanders warns. "I'm concerned that after the oversupply eases, we'll see dramatic pressure from the major PC makers to provide low-cost drives for their fourth-quarter sales push," Sanders says. "We're going sub-$500. In fact, we think that by the end of the year, half of all PCs sold will be priced under $1,000." The trend has huge implications for the drive business. "For many years," Sanders says, "the drive industry survived by periodically doubling capacity without changing prices," he says. "Now PC makers want the same capacity for half the price. That's a major change. Every major PC maker is talking to us about a low-cost solution for their fourth-quarter models." While low-end drives now sell to PC makers for north of $100 apiece, Sanders says the advent of the $500 PC could push low-end drives down to the $60-$70 range. Jim Porter, who tracks the drive industry at Disk/Trend, a market-research firm, confirms that all of the major players have started "crash programs" to produce lower-cost drives.