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

To: PaperChase who wrote (43131)	1/13/1999 1:13:00 PM
From: Earlie	Respond to of 132070

Paperchase: Channel stuffing wasn't an issue until two years ago. With PC revenue growth charging along at 30 to 40% per annum, the problem was how to meet demand. I first started noticing a slowing of PC sales/revenue growth about three years ago. Normally, markets discount out 12 to 24 months so, remembering the decimation of tech stocks that took place back at the turn of the decade, we brought this "slowing" to the attention of our clients, genuinely expecting to see them make a decent return on our work. Not. That slowing has intensified and accelerated ever since, and the annual global as well as national stats support our observations. I've enjoyed watching the Dataquests of this world revise their overly optimistic figures every few months, and always downward. Growth is now flat at best and about to turn negative. In the big Christmas selling season of two years ago, the market simply could not soak up all the PC product churned out by a growing number of players (the big four Japanese producers got serious, HWP started to really crank up, etc) and there was an inventory hangover. It wasn't large, but it screwed up the box-builder's forecasts, so they moved excess product into the distribution channel via incentives to meet their year-end forecasts. Last year's inventory overhang coming out of Christmas was much worse, and everybody, especially CPQ, dumped a great deal of product into the channel. (CPQ management lied through their teeth about this, but in the end, they were caught out). That product didn't move very quickly, so price cutting became even more endemic. Box builder shipments were in the ditch for much of the Spring. The distributors were badly mauled by this exercise, so they vowed that they would not repeat the error this year. I paid more even more attention to inventory levels this year than last because I knew a big "over-build" was underway in the Fall (see previous posts) and was curious to see where it would end up. Some of that excess did get turfed (again, thanks to Greenspan's rate cuts and to price cutting) but there is still far too much product out there with no home. Like last year, it will hurt the box-builder's Spring plans. The fact that corporate buying has really dried up is even more important, as has been noted by many on this thread. Intel makes most of its dough selling micros to box builders. The supply of micros is growing but end product (PC) total sales are not. When you visited the stores, I hope you asked the sales staff about actual sales, particularly on a year-over-year basis. Also I hope you noted the price levels that were required to move the product. Many retailers made very little on PCs this Christmas and many have actually moved their emphasis away from computers towards white goods, video products, and home entertainment centres, just to keep things together. The devil is in the details. One final point: Show me one set of PC or semi related quarterly figures emanating from 1998 that in any way support the current prices. I can tell you in advance that they don't exist. My bearishness relates to stock prices and their relationship to the current realities. When a sector's business is declining and the share prices are advancing, something usually gives. Incidentally, I'm not a retail specialist, (more a tech freak) but learned the hard way that management's comments about the future are about as reliable as weather forecasts for next month. I find knowing what's going on in the field to be a better indicator. Best, Earlie