THREAD ---Ibexx is right --this will have a big impact on earnings ---
Lower-Priced PCs Drove
Strong Sales in December
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
Strong holiday sales of low-priced personal computers proved to be a mixed
bag for electronics retailers: Unit sales for December jumped 41%,
outstripping earlier expectations, but a 20% drop in average prices crimped
results for some.
PC Data Inc., the Reston, Va.,
company that tabulated the sales
numbers, estimates U.S. retailers
racked up about $1 billion in PC sales
for the final month of 1998, a crucial
period that can make or break a
retailer's results. Not surprisingly,
says PC Data Senior Analyst
Stephen M. Baker, "The lower the
price, the more are sold."
Analysts said the mixed results could
lead to further consolidation among
retailers and in the number of PC brands they carry. Skimpy margins on
machines selling for $999 or less leave little room for forecasting errors. "I
suspect we'll see retailers aligning themselves with just one vendor, or
moving to holding less inventory," said retail analyst Ursula H. Moran of
Sanford C. Bernstein.
Still, the retail results portend strong fourth-quarter sales for some PC
makers, such as Compaq Computer Corp., International Business Machines
Corp., and Packard Bell NEC Inc., all of which cranked up production of
$599 to $799 home-PC models. PaineWebber Inc. analyst Don Young said
Compaq, which blanketed stores with three models under $1,000, "should
have a heck of a quarter."
It also augurs well for direct sellers Dell Computer Corp. and Gateway,
which have maintained average selling prices of about $2,000 by focusing on
repeat buyers. "The high-end has disappeared from retail, but it hasn't totally
gone away. It has gone to Dell and Gateway," says Ms. Moran.
For retailers, the increased unit sales don't
mean a boom year for the bottom line. Average
prices fell to $1,015, down 22% from
year-earlier levels and reflecting the spread of
home PCs beyond affluent families. Research
MarketMaps LLC, New Canaan, Conn.,
estimates 49.5% of U.S. households own a PC,
up from 43% at the end of 1997. "People
buying PCs now are not willing to spend as
much as the early adopters," said Vadim
Zlotnikov, PC analyst at Sanford C. Berstein &
Co. But, he said, newer buyers' interest in
purchasing a PC to get to the Internet bode well for continued demand.
PC demand drove sales at stores open at least a year to double-digit gains at
electronics giants Circuit City Stores Inc. and Best Buy Co. Best Buy,
which saw a $399 model sell out almost immediately after its introduction,
"had extremely good sales on low-priced PCs," says a spokeswoman. PCs
were the best-performing product at Circuit City, fueling an 11% hike in
same-store sales. Circuit City, which reported results Thursday, said total
sales rose 18% to $1.57 billion.
Even as cheap PCs drove demand, the falling price tags squeezed sales at
CompUSA Inc. and Tandy Corp., which had hoped for stronger sales of
higher-priced models. CompUSA, Dallas, said same-store sales tumbled a
larger-than-expected 4.7% in December from a year earlier, and it issued a
profit warning. "Consumers got a great buy," says Chief Executive Jim
Halpin, who says the retailer was forced to discount during the month.
Tandy, Fort Worth, Texas, saw November same-store sales flattened
compared with the year-earlier period, and it stayed out of the low-priced
fray. It said same-store sales for December rise a tepid 5%. Selling through
its Radio Shack chain, Tandy's lowest-priced model was a $999 PC without
a monitor or printer. Total December sales rose 6% to $587.2 million, helped
mainly by strong sales of wireless telephones.
By contrast, Dell Vice President Paul Bell says buyers were loading up on
such extras as digital cameras and scanners to take photos and send digital
images over the Internet. Dell said this year's best sellers had twice the
memory and about twice as much storage as last year's.
Likewise, Bart R. Brown, vice president of marketing for Gateway's U.S.
consumer business, said the company hasn't "experienced a terribly dramatic
slip in average unit price."
New buyers also tend to spur ownership among their peers, say analysts. "If
I have a PC, my friends may purchase one to talk to me," says Bill Ablondi,
researcher at MarketMaps. "There's a snowball effect building up here."
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