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Technology Stocks : Diamond Multimedia -- Ignore unavailable to you. Want to Upgrade?

To: AmericanDane who wrote (3721)	10/11/1998 2:41:00 PM
From: Jonathan Quick	Read Replies (2) \| Respond to of 4679

AD, Unit volume growth isn't an automatic plus for DIMD. Reduced CPU lifecycles have a tendency to diminish the appeal of the sort of upgrades that Diamond peddles for older machines. Increased functionality at the processor and the motherboard level combined with moves aimed at consolidation by larger players have hurt Diamond's current market positioning. Again, one of the elements driving increased CPU volume is pricing. Prices have been in freefall for at least the last two years. Industry-wide, companies like Diamond have seen reduced margins as a result. Management has yet to put forward a coherent strategy to deal with reduced margin on sales. As far as the backlog issue is concerned, I see a slightly different picture emerging. First of all, implicit in your argument that the backlog is good news for Diamond is the idea that customers are willing to put up with Diamond's failure to honor its commitments with regard to shipment dates. Management is allegedly trying to manage channel inventory. I have to wonder how the channel feels about Diamond's progress in managing the supply chain so far. Since Diamond isn't the only game in town, I don't think it unreasonable to suspect that Diamond will face non-negligible order cancellations and a possible reduction in shelf-space allocation at the retail level just before the onset of the holiday season. Probably the most disturbing thing about the present backlog is the timing. Diamond will first have to satisfy remaining 3Q demand before the company can begin to address 4Q orders. Since 4Q is traditionally a peak period for the company, delays in meeting 4Q demand are certain to become an issue as we head further into the quarter. Diamond continues to rely largely on commodity products for the bulk of sales revenue. If Diamond is unable to meet demand in as a result of its ham-handed efforts at controlling inventory, Diamond's competitors will be ready, willing, and able to pick up the slack. Jonathan