MIME-Version: 1.0 Server: WebSTAR/2.0 ID/1757 Message-ID: Date: Thursday, 18-Dec-97 11:28:45 GMT Last-Modified: Friday, 12-Dec-97 00:01:56 GMT Content-type: text/html Content-length: 6001 View From the Channel: PC Hardware (12/8/97)
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View From the Channel
PC Hardware -- A PC Demand Overview
Electronic Technology

December 8, 1997 (20 pp.)
Volume 5, Issue 5
Todd D. Bakar
  (415) 439-3316  tbakar@hamquist.com
Ian M. Morton
  (415) 439-3368  imorton@hamquist.com
Jeetil J. Patel
  (415) 439-3620  jpatel@hamquist.com
Dow 30:  8149.13
NASDAQ:  1633.90
S&P 500:  983.79

The U.S. corporate market experienced strong demand during October. We have heard a few reports that growth has moderated some in late November and early December. Overall, it appears that fourth quarter results at most channel players are tracking in line with, but not ahead of, expectations. Given the anticipation of strong year-end IT budget spending, purchasing trends in late December remain the key item to track. Given this year's holiday calendar and the demand pause experienced by resellers selling to large corporations at the beginning of this year, the situation bears monitoring. Given the rapid growth of sub-$1,000 systems in the consumer market, we expect some additional pricing pressure will inevitably bleed over into the corporate market. We believe that current channel inventory levels average around six weeks.
The U.S. consumer market experienced modestly healthy demand in October and November. Due to the growing popularity of low-cost PCs, revenue gains lag unit shipments, and we believe that current sales at many retailers are running modestly below channel expectations. Overall margins, however, are benefiting from a more rational promotional environment this year, leading to improved profitability. Given the heavily back-end weighted nature of retail sales during the quarter, December is the critical month to monitor (both in terms of sales and promotional activity). While retail shelves are full in anticipation of holiday buying, most retailers this year were more cautious in their inventory purchasing.
Internationally, demand in Japan remains soft, and sales in Asia/Pacific have slowed due to broad macro-economic concerns. Demand in Europe, however, continues to rebound from the depressed levels of prior quarters.
Importantly, within the overall PC market, significant share shifts continue to occur, benefiting the leading top-tier vendors and the larger, well-capitalized channel players.
While we expect the near-term trading environment for many PC-related stocks to remain choppy -- due to ongoing concerns about demand, pricing pressure, and inventory levels -- our longer-term outlook remains positive for the industry leaders. Dell Computer Corporation remains our favorite PC name, and Ingram Micro and Tech Data Corporation remain our favorite channel names.


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