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To: shane forbes who wrote (12784)	6/3/1998 5:38:00 AM
From: shane forbes	Read Replies (1) \| Respond to of 25814

(Is this cycle so different? - slowing unit demand for PCs? sometime ago demand was strong & pricing sucked - now both suck) Has anyone noticed the little subtlety in the PC market? It used to be accepted wisdom (a few months ago) that demand was strong but the shift to lower cost PCs was killing revenue. NOW however it is beginning to be widely accepted that PC demand has slowed dramatically as well. Here's some proof: (1) from Key Tronic: Key Tronic's OEM customers include major computer manufacturers who have recently announced more significant inventory reductions than previously anticipated. (2) from IDTI: An industry-wide slowdown, exceeding normal seasonal weakness, in unit demand for x86 processors and A substantial drop in demand experienced by the Company's limited base of OEM customers (3) from the retailers: techweb.com Faced with the uncertainty created by Windows 98's legal troubles and a relative dearth of new systems, retailers have been complaining for weeks that sales have slumped to sluggish levels. "Sales are relatively soft," said Nathan Morton, chief executive officer of Computer City, at last month's end. Sales associates at CompUSA, Best Buy and Circuit City Stores all confirmed the slowdown, although some said Memorial Day weekend was surprisingly strong. Sales strength would be surprising, given the general inventory sell-down taking place among major retail chains and top-tier brands that include Compaq Computer, IBM and Hewlett-Packard. (4) and lots of others... ---- This demand slowdown is some sense meshes with the weakness in back-end semi-equip demand at least the way it is being reflected in the stock prices of those companies such as COHU and TER etc. (Certainly these 2 at least thus far have not shown the sharp reductions in orders that the front-end people have had.) ---- The issue to me is that it used to be said 2-3 months ago that one thing about this cycle was the strong demand (but lowered pricing). Well why haven't we now heard about weak unit demand? Weak unit demand is a terrible thing for those companies involved. Because now not only have computers become so much cheaper but the cheapness has not resulted in sufficient elasticity to accelerate demand. So life truly will suck for the semiconductor companies involved here. Perhaps all should be blamed squarely on Windows 98 rollout. It adds the coup de gras to the other factors and delays the purchasing of old generation products. ----- Inventory Build => Price Reductions trying to move inventory => fails to do so as now demand slackens as well => desperate OEMs stop ordering chips => semi stocks slaughtered => everyone waiting for inventory to be cleared .... (corollary: take out 6 weeks of revenue for the PC companies from yearly results?) ---- shane.