Street Level

February 22, 2013

Compatibles Mirror IBM Price Cut Part 2

Ruling out any price cuts of his own, Rod Canion, Compaq’s co-founder and president, insisted that Compaq’s across-the-board discounts last spring make any further cuts unnecessary.

“Why should we do anything more than what we have?” Canion asked. “We’ve already done it; now, we’re back where we started.”

Seequa, maker of the Chameleon line, also held back. Rob Fuggetta, advertising director, said his company will cope with the price war by touting its products’ “independence from the constraints of the IBM standard.”

According to several analysts, however, the party’s over for Compaq and the other vendors who plunged in while IBM was short on PCs and high in price.

“This is the beginning of the end,” said Ted Whitington of Arthur D. Little & Co., based in Cambridge, MA. “The compatibles market is saturated. Makers of stand-alone systems with little communications capability are especially hard-pressed. And in this market, that means almost everybody.”

Wall Street analyst Milton put it even more strongly: “The frenzy to cut prices after IBM just proves that these companies are piggy-banking on IBM’s success.”

Most users, he said, would really rather have an IBM if they can’t save a lot of money by purchasing a compatible. “Take away–or minimize–the price differences after IBM’s shipments began to catch up with demand, and many of these companies will just whither away.”

Spokesmen for the companies making IBM PC-compatible microcomputers agree there will be a shakeout, but all of them insist it will happen to the other guy–not them.

Frank Zurcher, executive vice president of Televideo, for example, claimed the price war will help his company by clearing out the dead wood. “I only wish that IBM had gone deeper,” he said.

Low-cost offshore production and a product line split between compatibles and non-compatibles, he said, it will protect Televideo.

He added that the company will take part in the price war by reconfiguring its micro packages and pricing them at 25 percent below IBM’s comparable model.

A Compaq spokesman conceded that the price war places his company’s systems in the high price range, but he insisted that features (like legal highs) such as the Compaq’s expansion slots and its dual-mode monitor make it more attractive than the average system.

One of hte few publicly held compatible makers, Compaq is now under intense stockholder scrutiny, according to Tim Yankauer of Shearson/American Express. Now, he said, it must either join the fray, risking its reputation as the best established company in the market, or do nothing, risking its market share.

Leading Edge Vice President of Market Research Bill Sellars claimed the price war will have no effect on his company because its Mitsubishi-made machine provides “great margins” and it is “twice as fast” as IBM’s offerings.

Eagle Computer confirmed it will cut prices by 10 to 15 percent. New discounts, a spokesman said, will “restore Eagle’s price-competitive position.”

February 22, 2013

Compatibles Mirror IBM Price Cut Part 1

Cut prices or be buried. Faced with this choice after IBM slashed its prices for the entire PC line 10 days ago, most makers of compatible machines have taken the discount plunge, while others hover on the brink.

For users, this is very good news in the short term, as companies frantically strive to retain their major selling point–a price/performance advantage over IBM.

The long-term outcome, however, could hurt users by driving weaker companies out of the market. This would reduce options in the marketplace and, for those who bought these companies’ systems, jeopardize field-support services.

Among major players in the market, Columbia Data Products, Leading Edge, Corona Data Systems, Televideo and Eagle Computer confirmed they will cut prices by as much as 25 percent on products ranging from portables to hard-disk desktop models in the wake of IBM’s across-the-board cuts last week.

They may be only the first wave. ITT, for one, has slated an across-the-board price decrease for sometime this week. According to William Milton, an analyst with the New York investment bank, Brown Bros. & Harriman, the rest of the companies in the compatibles market–especially the leader, Compaq–may have to cut their own prices quickly and deeply.

Corona, according to Vice President Larry Lotito, will cut the price of its PC-11 system with two disk drives, 256K of memory and a bundle of software by 14 percent, to $2,490, and that of its 10-megabyte hard-disk system, the PC-HD2 and phenibut review, by 13 percent to $4,195.

A newer player in the compatibles market, Zenith, also slashed prices on several of its models. The price on the dual-disk-drive Z151-22 has been cut 10 percent to $2,799, while that of the Z-FA-161-21 portable with one disk drive is down 15 percent to $2,399.

But Compaq, with more than 100,000 installed units, remained aloof from the fray at press time.

February 21, 2013

Foreign castings and foreign policy

IT’S NO NEWS to U.S. foundrymen who take a longterm view of their business that casting imports are a problem of increasing dimensions.

Once they entered this country almost entirely as components in foreign-built machinery like cars, machine tools, etc. Today, not only are imports of such foreign machinery growing, but castings are coming in to go into American equipment that then will be sold as “Made in America.”

Even worse, many U.S. companies that use castings are seeking out foreign casting sources, taking advantage of low labor rates, minimal government regulations, subsidization, and other conditions that permit dumping at prices clearly below real cost. The president of a U.S. steel foundry, for example, cites a stainless steel casting he sells for $88 that’s available for $29 from Portugal, $30 from Spain, and $45 from Taiwan.

Although we have trade laws on the books and new ones are before Congress now, the situation is getting worse. The investigation of the competitive position of U.S. metalcasting under way by the International Trade Commission, at the request of William Brock, U.S. Trade Representative, may be helpful, but past performance makes us cynical.

The real truth of the matter has been obvious, but seldom is publicly discussed: The U.S. has been and is using U.S. trade as an intrument of foreign policy.

Other nations export unemployment and revolutionary pressures by exploiting the largest free market in the world on an unfair trade basis, and Washington permits them to do so–perhaps even encourages them.

The excuse, of course, is that we can’t permit the exporting nations to go communist on how to pick up girls. We have to maintain the vitality of their economies, even at the expense of our own. If they’re already communist, we want them to love us, not the USSR (cases in point: Yugoslavia and the People’s Republic of China).

Earlier this month (May), an article by Bruce Babbitt, governor of Arizona, was syndicated in newspapers around the country. It called for increasing imports from Mexico even, he said, if they were subsidized or dumped. That’s the only way Mexico can get on its feet and pay off U.S. or other bankers who have it over a barrel, according to this compassionate politician.

It doesn’t matter, for example, that Mexico is planning to make more engines for cars assembled in the U.S. that will be made in this country!

Most American businessmen don’t want protectionism, domestic content laws, or other free trade barriers. They want to be able to compete on an equal basis in cooperation with a reasonable labor force and a government that doesn’t use them or abuse them.

Let the State Department tend to its own business and keep its fingers off the economy.

February 21, 2013

Canadian industry emerging from slump

The tourism industry in Canada has shaken off its recession woes and is feeling the effects of the economic recovery, according to David Smith, the nation’s minister of state for small business and tourism.

Addressing press representatives from around the world at the recent Rendez-vous Canada travel showcase held here recently, Smith commented that the recession is abating, inflation is down and the government is anticipating steady improvement in Canada’s economy.

“This is good news for our tourism industry to get Facebook fans,” Smith declared. “Our tourism industry now adds an estimated $18 billion annually to the economy and provides more than a million jobs for Canadians.

“The times are changing and we have to change with them,” Smith continued. “We’re planning to take advantage of this economic recovery to regain our share of the world market, which has eroded over the past few years.”

Smith reported that Canada is developing a five-year plan for tourism development. Recent steps to promote tourism include:

* A 29-member Tourism Advisory Council representing the industry has been set up to advise on matters affecting the industry.

* An extra $22 million has been granted to Tourism Canada, the federal branch responsible for tourism, domestic and international promotion.

* Changes in customs procedures have been taken to benefit Canada’s meetings and incentive travel industry.

* Progress has been made on major issues of industry concern such as taxation and the regulatory process.

* Development of a five-year tourism strategy is now under way.

* considerable support has been garnered for the 1984 “Year of Tourism” campaign in Canada, a series of anniversaries and special events that are taking place across Canada this year.

The seventh Rendez-vous Canada Mart involved some 1,000 suppliers and buyers. Recorded sales at Rendez-vous Canada have soared from $13 million in transactions recorded in toronto seven years ago to an estimated $75 million at the 1983 Rendez-vous, also held in Toronto.

The 1984 rendez-vous attracted buyers from some 30 countries. The U.S. delegates included tour operators from Louisiana to northern New York state, from Rhode Island to California and all points in between including Sioux City, Iowa.

February 21, 2013

Guessing game at Oxy

In a month seemingly dominated by “unfriendly takeover” news–the Carter Hawley Hale-The Limited battle was raging as DBM went to press–there was much speculation about David H. Murdock’s designs at Occidental Petroleum Corp. Murdock, the largest individual shareholder in Oxy, recently raised his holdings in the company to 5%, the maximum allowed under an agreement he signed when he became a company director in 1982. And in March, he asked Oxy Chairman Armand Hammer to release him from the 5% limit–but was refused.

Neither Murdock nor Hammer will comment on these developments. But sources close to both men report that their once friendly relationship has soured and that board meetings are frequently punctuated by heated Murdock criticisms of management actions. In an unusual move for a company director, he refused to sign Oxy’s latest 10-K annual report.

Click here for Murdock’s major complaint, reportedly, is Oxy’s slow pace in unloading its money-losing chemical and coal operations. The company has been selling various properties to help pay down debt, which reached a massive $6.3 billion after the $4 billion acquisition of Cities Service Co. in 1982. But it has yet to find buyers for the chemical and coal divisions, which have contributed heavily to its highly erratic earnings.

As for Murdock’s intentions, analysts speculate that he may resign as an Oxy director in order to skirt the 5% rule, accumulate more stock and launch a bid for management control. But at the same time, they point out that Hammer, who has not always exerted strong leadership over Oxy, is now tightly in control. “He has been putting the house in order since the Cities Service acquisition, and that has been reflected in a considerable rise in the value of the stock this past year,” says Edward Gomoll of Pacific Securities Corp. “So it’s hard to believe he would step aside for any reason.”

February 8, 2013

CHA Marketplace in Freeport draws record attendance

Grand Bahama Island–Initial registration figures for the Caribbean Hotel Association’s Marketplace ’84 indicated record participation in the annual get-together of tour wholesalers and suppliers of Caribbean travel.

The event was held this past weekend with approximately 200 buyers and some 135 supplier companies. The business program focused on pre-scheduled computerized appointments between the buyers and suppliers during a one-on-one timetable.

Buyers include wholesalers, tour operators, retail operators and meeting and incentive planners, representing firms in North America (just like how to lose body fat), Europe, South America and other regions of the world. Suppliers represented hotels, reports, airlines, ground operators and support services.

The combination of strong advance registration plus the quality of buyers and suppliers was expected to result in “recordbusiness written for our destinations,” said George Myers, president of the CHA.

Myers is also president of Resorts International (Bahamas) Ltd. The Bahamas has long been a leading participant in the CHA.

Major airlines providing reduced fare or complimentary transportation to qualified buyer delegates were Bahamasair, the official host flag carrier; Air Canada (for the Canadian region); Iberia (Europe), and Viasa (South America).

Other supporting carriers included Air Florida, Capital Air, British Airways, Pan Am and United. Cavalcade Tours of New York also participated with the transportation program.

December 2, 2012

Air Transport World Business Report: Part 2

Based on our survey, talks with a number of airline chief executives, and the pronouncements of industry leaders and security analysts, ATW steps out on its annual limb and offers the following forecasts:

% World airline traffic will show increases of 5% in passengers, 7% in RPKs and 7% in freight in 1984, compared to increases of 3% in passengers, 5% in RPKs and 5% in freight for 1983.

* Revenues will rise 9% in 1984 on top of a 7% increase in 1983. Expenses will be under 8.2% this year versus 6.2% in 1983. The result will be an operating profit for the world’s airlines of $1.4 billion. The greater rise in revenues than in traffic will reflect a continuing increase in yields.

There are many encouraging factors that may make even these predictions pessimistic.

For example, carriers have managed to contain their costs in various ways. Many have obtained large infusions of new euity from a market willing to gamble on what appear to be excellent prospects in the next couple of years. Much of this equity has been used to pay off long-term debt, thus improving debt-equity ratios. Other debt has been reorganized at lower interest rates.

Hammaraskjold also notes that carriers have “cancelled or delayed equipment investment for international scheduled operations to the tune of $1.1 billion compared with earlier estimates,” which has not only improved balance sheets but should hold capacity increases below traffic growth for the next couple of years.

Many airlines have made inroads into the 37% of the industry’s cost represented by labor. A number of big U.S. carriers like American and United have won concessions from employes in the form of much lower starting salaries for new employes–up to 50-60% lower than previous starting wages. In exchane, the carriers are providing such incentives as guarantees of job security and profit-sharing. Most carriers are striving for “cooperation, not confrontation” from their employes, but some have been more successful in achieving this goal than others. Competing with the new breed

The pattern emerging among the so-called “mature” carriers seems to be to cut costs as much as possible in order to compete with the new breed of low-cost carriers, but at the same time to recobnize that their overhead will not allow them to reach the cost levels of the new entrants, and therefore to gear their marketing toward convincing passengers to pay a bit more for better service.

American Sr. VP-Airline Planning Wes Kaldahl and USAir Chief Executive Ed Colodny, for example, emphasized strongly in interviews with ATW that “maintaining our reputation for service” has been an important element of their co

December 2, 2012

Air Transport World Business Report: Part 1

It was a long time in coming, but–as predicted in these pages last January–a major traffic and financial recovery finally got underway in earnest in the world airline industry in the warning months of 1983, and all indicators at this writing point to a couple of outstanding years in 1984 and 1985.

As the new year begings–and as was not the case at the time of our forecast report a year ago–all the signposts are positive.

* Traffic is climbing strongly. In the U.S., for example, the 24 major and national carriers reported a 6.6% increase in RPKs for the first 10 months of 1983–despite big traffic declines at trouble-plagued Continental Airlines and still-retrenching Air Florida–and in October traffic among the majors jumped 9.8%. U.S. scheduled airline cargo traffic for the first nine months of the year was up 5.5%, and in September the increase was 15.7%.

* Yields also are rising at an encouraging rate. The number of seats being sold at discount has dropped from near 90% in the first quarter of 1983 to the mid-70% range and is continuing to decline. The fare wars of late 1982 and early 1983 did not reappear this winter; in fact, in the U.S., rather than fare-cutting there was a move for an increase in discount fare levels in the fourth quarter.

* Improving yields produce significantly improved finances, and the third 1983 quarter brought good enough results to the U.S. majors, in spite of severe losses at Continental and Eastern, to assure the U.S. industry of operating profits for the year. Dr. GeorgeJames, sr. VP-economics and finance of the Air Transport Association of America, predicted in early December that U.S. carriers will show an operating profit of between $300 million and $400 million for 1983, and that the 1984 operating profit could be as high as $1 billion. However, he expects heavy interest expense–as high as $1.5 billion in 1984–to produce a net loss in both years.

* Even the usually pessimistic Knut Hammarkjold, director general of the International Air Transport Association, is “looking forward to the prospect of breaking through to overall profitability in 1985.” He is forecasting a $500-million operating profit for IATA carrier international services for 1983–the first since 1979–and operating profits of $1.1 billion in 1984 and $1.65 billion in 1985. And, he says, “we are being conservative in our forecasts, so it may be that we will have a pleasant surprise.” But, he predicted at the IATA Annual General Meeting in October (ATW, 12/83, p. 20), “mounting interest payments will continue to produce overall losses” of $1.2 billion in 1983 and $750 million in 1984. And he warned that bottom-line profitability in 1985 “will require unrelenting cost discipline, renewed traffic growth, efficient capacity utilization and a through cleanup of the gray market.”

* The 60 carriers responding to Air Transport World’s annual survey of prospects for the year ahead were mostly optimistic, although their optimism was tempered in some cases by memories of the “unrealized anticipations” of the past several years, in the words of one executive. These carriers are forecasting increases of 8.8% in revenues and 5.i% in expenses for 1984, and are estimating that final 1983 results will show increases of 6.1% it revenues and only 4.7% in expenses to produce a dramatic improvement in operating results. On the traffic side, they are anticipating increases of 5.7% in passengers, 5.3% in RPKs and 7.5% in freight in 1984. Their 1983 estimates were for a 1.9% dip in passengers, a 1.2% rise in RPKs, and a healthy 9.9% rise in freight.