SAN FRANCISCO (CNN/Money) -
Readers of boutique investment firm Ramberg Whalen & Co.'s daily newsletter may have received a hot tip last week: "In 12 to 18 months Wal-Mart wants to own a chunk of the PC market," the straightforward, semiconductor-focused newsletter declared.
Attributing the information to a retail colleague, the dispatch went on to say that "the giant retailer may enter the fray with its own brand, sitting next to the offerings of existing PC makers."
On the same day the newsletter was published, "Circuit City and Best Buy downgraded their outlook," chuckles Chris Whalen of Ramberg Whalen -- though he does not believe there is a connection between his newsletter and the downgrades.
Wal-Mart (WMT: down $1.54 to $53.95, Research, Estimates) moved quickly to deny the rumor. "We have no plans [to release a Wal-Mart-branded PC] at this time," says company spokesman Tom Williams.
But why not? Given Wal-Mart's retail dominance and its strength among low- and low-middle-income customers -- among the few remaining consumer segments that have not already reached PC saturation in the United States -- it's easy to make a case that the retail giant should create its own brand of low-cost machines.
There are precedents for this. Earlier this year Best Buy began selling PCs built by VPR Matrix, joining the likes of Future Shop and RadioShack Canada -- other retailers with their own lines of PCs. (A Best Buy spokesperson says the company's line is doing "extremely well.")
Taking brand-name products off the shelves allows retailers to increase the razor-thin profit margins on computer sales. Typically, manufacturers earn an 8 percent profit on PCs sold through retail channels. But retailers are lucky to see a 5 percent profit on the brand-name PCs they sell.
Cutting the brand-name manufacturer out of the equation would allow retailers to drop prices while boosting the bottom line.
The growing expertise of PC manufacturers in Asia makes it easier for retailers to create self-branded PCs. "The Asian foundries started out as chip manufacturers, then went to parts, and now they manufacture the whole box," Whalen says. "Wal-Mart can outsource the whole product and pick up a couple points on margin."
This year's merger of Hewlett-Packard and Compaq (HPQ: down $0.10 to $16.80, Research, Estimates) -- formerly the No. 1 and No. 2 retail PC manufacturers -- means that retailers now have fewer brand options to offers consumers. That's not good.
"Consumers come to retail stores to have a choice," says Steven Lee, vice president for strategic development at Best Buy. "As the industry consolidates, we need to provide that choice."
Of course, some are quick to point out that a retail operation and a PC company are two very different businesses -- a lesson that both Gateway (GTW: up $0.14 to $3.70, Research, Estimates) and Apple (AAPL: down $0.17 to $15.78, Research, Estimates) have already learned since opening their own retail shops. On average, PC lines lose 1 to 2 percent of their value each week, says Charles Smulders, a vice president at Gartner Research.
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Smulders argues that the key to profitability in the PC industry is minimizing ownership -- limiting exposure to costs such as manufacturing and inventory. Like Best Buy, Wal-Mart would be able to do this through the use of outsourcing relationships with PC manufacturing and support partners.
Meanwhile, no other retail concern matches the efficiency of Wal-Mart's inventory and supply-chain networks -- areas of expertise that are crucial to profitability in retail PC sales.
Obviously, a launch isn't imminent -- and may not happen at all. But with consumer PC sales picking up again -- IDC's latest report saw a return to positive growth after five straight quarters of decline -- keep an ear tuned for big announcements from Bentonville.
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