Computer Retailers Feeling Squeezed
Despite the relative health of the microcomputer industry, many retailers are still experiencing rapid declines in gross profit margins. The heavy discounting seen earlier in the year has abated somewhat, but most retailers are still worried--and some are convinced--that their gross profit will continue to slide this summer.
On average, retailers’ gross margins are dropping one-half to one percentage point a year. If there is money to be made in personal computer retailing, it must be mined in a radically different manner than in the industry’s heyday. Gross profit of 25% or more were common among PC retailers only two years ago. But now leading merchants such as Computerland, Businessland, Inacomp and others are struggling with gross margins below 20%. Severe price competition for lucrative business accounts is at the heart of the erosion of retailers’ once-hefty profit margins.
For the most part, a constrained supply of computers is not at issue. Microcomputer vendors are still shipping systems in substantial numbers. In the United States, an 8.2% growth in unit shipments of microcomputers is expected between 1989 and 1990. Through 1994, computer shipments worldwide are projected to increase at a compound annual growth rate of more than 12.5%.
Another shakeout will not hit the retailing side of the PC industry in the near term, but the survivors of the margins crunch are having to run leaner than ever before.
Japan Opens Door to Space
U.S. and Japanese trade negotiators have signed an agreement that could give aerospace firms in the United States and elsewhere the opportunity to bid on Japanese satellite projects. The agreement applies to several projects--including government programs, non-governmental research and development and weather satellites--that previously had been restricted to Japanese bidders.
The Japanese Institute of Space and Astronautical Science and the National Space Development Agency have launched an average of one satellite a year since 1970. They plan to increase that to four a year.
Each satellite contains an estimated $40 million in electronic equipment, each launch system $12 million.
Semiconductors account for 3.8% of the satellite and launch equipment content. Each launch will require a little less than $2 million worth of semiconductors, bringing the cost of four annual launches to almost $8 million. This figure does not include the ground equipment required to monitor satellite activities.
As a precursor to the agreement, Japanese negotiators announced in late March that the government would change the way it would develop the CS-4 communications satellite. The change occurred after the United States objected to the ban on foreign bidding for the project. The United States maintained that the CS-4 was not a governmental research project--and therefore off-limits to foreign involvement--because 75% of the cost was being paid by publicly held Nippon Telegraph & Telephone. The United States said the Nippon investment made the CS-4 a commercial effort that foreign companies should be allowed to bid on. As a result, CS-4 will be broken into two projects.
The first will be a relay tracking satellite wholly funded by the National Space Development Agency. The earliest it is expected to be launched is 1995, at an estimated cost of $406 million. Major Japanese satellite developers such as Mitsubishi Electric, NEC and Toshiba are expected to continue their involvement in the tracking satellite.
The second part of the project will be a commercial communications satellite that will be open to bids from such companies as Hughes Aircraft, General Electric and Ford Aerospace. Because of the controversy, Nippon Telegraph & Telephone may pull out altogether, opening the door even wider for foreign bids.
