Despite New Product, Industry Price Cuts May Hurt Kaypro
Despite cuts in product prices and the addition of a new computer that’s compatible with IBM PCs, analysts maintain that Kaypro Corp.’s advances will likely be blunted by industrywide price cutting and the wave of new products being introduced by other computer manufacturers.
“Price cuts won’t help because their battle for shelf space in the volume distribution arena is over,” said a financial analyst who recently stopped following Kaypro. “They lost to the IBMs, Apples and Compaqs, and Kaypro is left with a not terribly impressive market segment.”
Kaypro’s shelf-penetration dropped last summer--the company was in about 9% of all retail stores in August compared with 12% in July, according to Richard J. Matlack, president of Infocorp, a Cupertino-based marketing company. “It doesn’t surprise me, because they’re considered to be a second-tier supplier, and in today’s retail environment, retailers are cleaning out the second tier and going for the hot sellers,” Matlack said.
Another analyst suggested that although Kaypro will be “a bit more attractive” because of its recent price cuts, revenue gains will likely be dulled by competitors’ price cutting.
Kaypro is also being hurt by a dramatic rise in the number of computer models, said Bill Ablondi, a market analyst with Dallas-based Future Computing. “Take a look at Apple, Compaq and IBM, which now have 15 models sitting on shelves. That’s up from just three in 1981.”
Newly named Kaypro President David Kay countered that his company is not losing shelf space or sales to competitors. “I think it’s an indication that they’re not checking (the stores) where we are,” Kay said. “We’re very confident that we’ll get even more shelf space from the Kaypro PC . . . because of its very aggressive price.”
Although Kaypro is still pushing to make inroads into the nation’s larger retail computer chains, Kay acknowledged that Kaypro will remain dependent upon smaller, independently owned office-products and computer stores. “Even if (independents) have only 10% to 20% of the market, it’s still a big target to go after,” Kay said.
Sagging sales that squeezed profit margins teamed with a continuing inventory control problem to push Kaypro to report a $6.2-million net loss and sales that fell 48% to $16.7 million during the third quarter ended May 31. For the nine-month period, Kaypro reported a net loss of $6 million and revenues that fell 38% to $97.3 million.
Although Kaypro will not release fourth-quarter and annual figures for the period ended Aug. 31 until next month, Kay said he is “very optimistic about the future.”
“We’ve got the broadest line (in the company’s history) and are ready to ship the (Kaypro) PC, which will stabilize our efforts in marketing and allow us to compete with foreign competitors,” he said.
Kaypro has attached a $1,595 price tag to the IBM PC-compatible and PC XT-compatible computer that it began shipping this week.
“We will be ramping up to ship several hundred (Kaypro PCs) a week,” Kay said. “We now have the one product that was missing from our line and the XT-compatible unit is capturing the lion’s share of the market these days.”
The IBM PC-compatible computer will become an integral part of Kaypro’s marketing effort, said Kay, who acknowledged that “our sales (in dollars) have not been increasing. They have been flat or slightly decreasing.”
However, Kay said that concentrating solely on Kaypro’s dollar volume would be “pretty much irrelevant because the depressed computer industry is also suffering a decline in units sold.” That combination of weak sales and squeezed margins is creating “a much more dramatic (dollar volume) decrease,” he said.
Kay maintained that Kaypro’s dollar volume is further slowed by the company’s decision to operate as “a price/performance leader.”
Although Kaypro Controller Robert Gorsky would not comment on Kaypro’s quarterly and annual figures, he indicated that the Solana Beach company has probably weathered the worst of an inventory shortage that caused a $9.2-million writedown of earnings during the third quarter ended May 31.
“We may have additional writedowns and they may be significant,” Gorsky said. “But they will not be as significant as the $9.2 million.”
Kaypro, which first experienced a severe inventory shortage during fiscal 1984, has instituted inventory controls that have “corrected that situation,” according to Kay.
