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

To: Mary Cluney who wrote (39846)	12/18/1998 7:56:00 PM
From: Earlie	Read Replies (8) \| Respond to of 132070

Hi Mary: Essentially there have been no new applications for a couple of years. Two years ago, (Christmas of 1996), we had the great internet craze in which everybody and his dog ran out and bought a PC and modem to get on the net. Last year, there was a desultory effort to promote the "new" (read cleaned up) Windows 98, but it really didn't do much for sales of boxes. This year, there is absolutely nothing. When the hardware lagged the applications in terms of performance, it was easy to get customers to "upgrade", but today, that isn't the situation. I've been watching for new applications for some time, as I like to stay on the edge in that area. As an example, I've tested and used voice recognition systems for many years (they're not there yet, and there is another problem in that most kids have superb "keyboard skills",....they can plough the words in faster via the keyboard than I can with even the best voice recognition system). I don't know what will come along, I just expect that something will, and I hope I'm there early (I look at many dozens of junior tech companies every year and raise money for some of the better ones from time to time). Without some new applications, the PC cycle is in Death Valley for the next few years. It comes down to the fact that most current applications simply don't work all that much better on a new jazzy PC than on an older one or on a very cheap one. You need a lab environment to measure the difference. The PC glut has been building for quite a while. We've had excess product left in (or stuffed into) the distribution channel in each of the last three "year ends". The first was tiny, the second was consequential, and last year's caused big problems for the industry for almost two quarters. This year, all of the box builders suffered reduced sales in Q1 and Q2, so they all decided to "go out there and grab market share" in the big Fall/Christmas selling season. Each expected to do this and each massively over-ordered chips and over-built boxes. Q3 did not go well, and Q4 is shaping up as weak. I'm estimating that the inventory overhang coming out of Christmas will be in the millions of boxes. I'm also estimating that this year (1998), the industry will experience the first year ever of FLAT (year-over-year) UNIT growth and DECLINING (year-over-year) revenue growth. Bluntly, this is a disaster for the industry. 1999 will be worse. Not only is the industry going to have to find a way to move all those excess inventory boxes this winter, but it is also going to have to cope with the fact that several additional national jurisdictions that were able to purchase boxes this year, will not be able to in 1999, due to the spreading deflationary crunch (example, Latin America, which is imploding as we speak). I'm estimating a significant DROP in UNIT sales next year. That will cause even more price pressures. Margins across the industry are already razor-thin. They will disappear next year, and I expect the box builders to follow their suppliers into a "selling-below-cost" environment (which has plagued the semi boys for a year). What I am expecting is an out and out disaster, and I'm already in print so saying. I'm frequently "early", but usually accurate in this stuff, so you can ridicule or applaud the call a few months hence. (g) I've followed this game for quite a while. I've never seen anything like the current conditions. That doesn't mean that jerks like Dan Niles won't continue to try to get the twits out there to either overlook the problems or to look out across the valley to all those better things to come. (g) One additional comment,....the environment for semi producers is a complete disaster. More supply coming on, even as the demand is declining. Dan resides on another planet. Best, Earlie