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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (37496)	11/24/1998 10:43:00 PM
From: Earlie	Read Replies (7) \| Respond to of 132070

MB and gang: It is going to be a long winter for the box-builders. All on this thread are familiar with the nasty break in corporate PC purchasing that has been messing up the happy dreams of the PC crowd. Let's now add a bit more salt to the soup. From October on, every PC retailer has been offering up a little prayer each evening that something spectacular would rise from the pre-Christmas mist to save what is starting to look like a limp Christmas selling season. They especially looked to Comdex. Alas, Comdex has come and gone and nothing, repeat nothing, turned up. This will be the first year that I can remember where there has been absolutely nothing (other than price) to attract buyers into the bowling alleys. The sales guys and gals are applying for postings to the "white-goods" area. I've had a lot of trouble trying to understand how INTC can maintain a "strong growth" point of view, given the above, especially knowing that AMD and the other micro carpet-baggers are eating into Intel's former monopoly lunch. For example, TWO former INTC loyalists provided Intel with cancelled orders last week (one of them was a big one) and have moved over to the AMD camp. As I see it, AMD has appropriated the largest market share grab in PC history. They are approaching 4.0 million micros a quarter. That's 16.0 million per year. AMD now has contracts with ALL of the big box-builders. A year ago, Intel owned this whole arena. IDC to the contrary, I'll be surprised if the industry sells more than 85 million PCs this year which means for the first time in history, unit sales growth will be flat, and of course, revenue growth will be negative. IDC forecasts have always been super optimistic, but this year, they'll miss by a mile. Intel has wolves at its door. Intel was assisted by some box-builder madness this Fall. As a result of last Christmas' "channel-stuff," the early part of 1998 was ugly for all box builders hence each has geared up for a truly big sales effort this winter to try to come close to estimated sales. Each intends to grab market share from its competitors. In their normal enthusiasm, every one of them has over-built this quarter, and over-built big-time. My estimate is that the industry will sell maybe 25.0 million units this quarter (22.6 million were sold in Q3) to end the year at 85.0 million units. Fred thinks it might be a bit higher, but it really doesn't matter because unfortunately the current over-build will provide a multi-million unit excess going into the new year. (I won't even suggest how big our internal estimate of the over-build is, as most would simply think we are exaggerating.) If you thought last year's channel was plugged, wait until January. This is going to be the biggest hangover any of us have ever seen. OK, so INTC got to sell a bunch more micros than expected, courtesy of the dumb exuberance of their clients, but the numbers still didn't add up to a situation that would support Intel's hype. Turns out that the micro spot market has been "bagged" by INTC's "shortages" announcements. Following that INTC announcement, the spot market speculators rushed in to buy up INTC order positions, (paying catalogue prices in the process) expecting to sell their micro holdings back to desperate box builders late in the season. No way. Some of them are just beginning to smell the trap and are anxiously looking for buyers. Downward price pressure is just starting to emerge. It will be messy before year end. By January, we will have a huge over-supply of PCs AND a big glut of micros. I don't want to conjecture as to what INTC's sales will look like in Q1 but it will not match last year's (I love understatement), which didn't match the year preceding, etc. In a nutshell, Intel will simply not post up the numbers that the street is expecting in Q1. It will also be very obvious by Christmas, that PC warehousing has become a growth industry. Intel has another reason for its unbecoming stock hype. It would like to buy 3COM and to do so with over-valued stock. Michael Dell said in Q1 that he would not sell at the bottom end of the PC market. We said he would be forced to as that was where the major sales were taking place. Michael has changed his mind. He's going into the bottom end (which accounts for the INTC cancellation and move to AMD), but he's coming in late, and the margins therein are grubby. Dell also sells mainly to business. It's PE leaves no room for any disappointment. Time to align gun sights. Look for tons of sales in the $499 to $800 range this Christmas. Nobody makes decent margins at these prices. Best, Earlie