Paul: No wonder INTC is stagnant..... with all this confusion about the PC market.
However, it would seem that while the box makers are duking it out, Intel may yet laugh all the way to the bank.
An AMDesque comment directed this time at Compaq...''They're competing against Dell and saying, 'We'll beat your price, plus we'll feed 3% to 6% back to the dealer,' '' IDC's Boggs said. ''Holy smokes! You can't lose money on each product and make it up on volume.''
investors.com
(I think you have to register).
Some PC Firms Discover A Hot Market Is Cooling
Date: 3/16/99
Author: Nick Turner
There are signs that the personal computer industry's fastest-growing market last year, small and midsize businesses, is slowing this year.
Last month, both Compaq Computer Corp. and Hewlett-Packard Co. reported slowing sales growth to small and midsize businesses. That worries some analysts and investors. Compaq shares suffered their worst single-day drop in three years on Feb. 26, falling 5 5/8 to 35 3/8. The Compaq news rippled through technology issues.
Yet Dell Computer Corp., Gateway Inc. and other PC makers haven't hinted at any such slowdown.
Demand is still high, say analysts and some companies, but price competition is squeezing profit margins. And some observers fear that many small companies - like many big companies - already have most of the PCs they need.
''This market has to be close to saturation,'' said Ray Boggs, an analyst at International Data Corp. ''On the other hand, we said that two years ago.''
In the past 12 months, the percentage of small businesses using PCs has risen to 85% from 78%, Boggs says. ''That's very significant,'' he said.
Large corporate customers provide PC companies with revenue when they upgrade their equipment. But smaller businesses are attractive because they're a source of first-time buyers. Profits and sales for PC companies could be hurt if that segment, like big business, becomes mainly an upgrade market.
Analysts don't see unit sales to small business slowing. But strong competition could force companies to lower their prices so much that sales growth slows, they say.
In comments to analysts last month, Compaq said sales to small and midsize businesses have been weak through the first six weeks of this quarter. The largest seller of PCs said North America and Europe led the slowdown.
Dell and Gateway, the PC industry's largest direct sellers, are aggressively targeting the small-business segment. But analysts say Compaq didn't even hint that it had lost any market share to Dell and Gateway. Instead, the company blamed slowing demand.
Executives at Houston-based Compaq refused to comment for this story.
Palo Alto, Calif.-based HP last month made similar comments to analysts. It blamed aggressive pricing by Compaq and IBM Corp. for its dip in sales growth. HP has been forced to match Compaq's and IBM's price cuts.
IBM reported no such problems. And Dell and Gateway both say the small-business segment continues to provide major opportunities for growth.
HP, too, thinks small business is a strong market in the long run.
''I'm bullish about the growth of this market,'' said Kim Tchang, sales and marketing manager for HP's small and midsize business customers.
The need to network computers and forge a presence on the Internet is driving technology purchases, she says.
But demand from small businesses is hard to predict this year because of the Year 2000 problem.
Analysts figure that large corporations will complete their major technology purchases by midyear. They'll spend the second half of 1999 making sure their equipment is free of the Year 2000 glitch, which causes computers to recognize the year 2000 as 1900.
But smaller companies will be less methodical, observers say.
About a third of small businesses have a thorough Year 2000 plan, Boggs says. Another third haven't completed plans, but they think they're in good shape. And the rest haven't given the problem much thought.
''It's a little scary,'' Boggs said.
That late planning, though, could be good news for PC makers. Large companies have complex systems that they can't easily replace. But small businesses may solve their Year 2000 issues by buying new software and hardware.
Some analysts predict a healthy year for small-business sales. Worries sparked by Compaq's comments are overblown, says Andy Bose, president of Access Media International Inc., a research firm in New York.
''This is much ado about nothing,'' he said.
Shipments of PCs to businesses with fewer than 100 employees this year will rise 14.5% to 7.1 million from 6.2 million last year, he says. (See Data Bus.)
Shipments to midsize companies - those with 100 to 500 employees - will rise 14.3% to 3.2 million from 2.8 million.
PCs are still the focus of small-business technology spending, but small businesses also are increasing funding of service and support, Bose says.
Maintaining an electronic storefront requires more technical help than businesses needed before, Bose notes. And more small companies are using electronic data interchange - taking orders and sending invoices online.
Small businesses say they're more likely to buy PCs now than they were a year ago, according to IDC. Its small-business survey last month found that 38% of respondents said they plan to buy a PC in the next 12 months. That's up from 30.3% a year ago.
But a jump in orders might not result in more revenue if competition forces more price cuts.
Dell, with its efficient direct-sales model, historically has offered lower prices. But Compaq and others have lowered prices in the past few years to better compete, partly by offering more direct sales.
But not everyone's sure if these new business models can be maintained.
Compaq unveiled a new line of PCs last year that it's selling through retailers, directly or through resellers. When a reseller makes a sale, the PC is shipped from a Compaq warehouse, but the dealer gets a small cut.
''They're competing against Dell and saying, 'We'll beat your price, plus we'll feed 3% to 6% back to the dealer,' '' IDC's Boggs said. ''Holy smokes! You can't lose money on each product and make it up on volume.''
Srini.
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