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Non-Tech : CompUSA (CPU) -- Ignore unavailable to you. Want to Upgrade?

To: Jay Rommel who wrote (636)	7/8/1998 12:01:00 PM
From: Scotsman	Read Replies (2) \| Respond to of 3187

A good article. It points out a few areas of concern for CPU both long and short term. Short term, although the aquisition of CC is positive there will be the normal problems associated with such a purchase. However, unlike the CPQ/DEC merger, the CPU/CC has the advantage that CPU and CC competed in several of the same cities, so I would imagine that CPU will probably be stripping many of these of their inventory and selling the property or the lease. This should provide a significant offsetting cash inflow. One thing the CC purchase gives them is access to Canada, so this is a positive that may work out quite well for them. This will take some time, so the next two quarters may by affected, so I would be suprised if we see it soaring through 20 any time soon. In the long term, the Gateway/Dell problem is much larger. These companies, particularly Dell, have business models that allow them to provide top notch custom made computers very quickly with no middleman such as CPU. This is one of the main reasons Dell and CPU parted company a few years back ( some of you new investors may not have known that CPU was DELL's exclusive dealer for about two years.) It didn't fit DELLS model. As history has shown, DELL was right on. DELL is pushing now to sell through the internet in a big way, and they are pushing to sell to the retail consumer along with businesses, so this will hit CPU in two large areas. I know, I am writing this on my DELL at home. So how will this affect CPU. Well, one thing I am not too worried about is the Gateway stores. They remind me of the old CompuADD stores (I am showing my age) Not they will have no impact, but I think it will be limited as these stores are limited themselves to Gateway products and some software. Not near the size or volume that a CPU store has. The DELL issue could be another thing, but I am not too sure that this will also be a huge issue. CPQ and IBM are starting to build to order, and CPU has its own line of BTO computers that are starting to get their act together so that may resolve itself. The problem long term I see is profit margin,selling price, and the Internet. The way I see it, CPU is positioned very well to get the first time computer buyer. They are usually novices, are often buying computers for their children for the first time, and are in the lower to middle class of income. Hence they would prefer to go to a store where they have a face to talk to and a place where they can take their computers if there is a problem. There are a lot of these, so its a huge market. BUT, they also will not probably be buying the top end computers and will tend towards the cheaper computers. So margins will be squeezed. Hopefully this will be made up with volume. However, CPU does sell a lot of software, and I know I have no intention of purchasing software over the net or mail if I have to wait a few days to get it to save a few dollars if I can bop down to CPU and get it immediately. So I don't see this changing. However, repeat buys by these same persons may be in question. Once they get used to their computers, they will be exploring the Web. And there will be DELL and others selling over the net. Will they go back to CPU or buy another over the net? A large but important question. Happily, CPU doesn't get its revenue exclusively from the retail side of things. They have a large corporate sales force, and many businesses use them for purchase, training, and support. Also they are working on company alliances, such as the rumored IBM deal. So the future is a little cloudy. But it always is.