U.S. PC Makers Face Difficult First Quarter:
Industry Outlook
March 24, 1999, 9:18 a.m. PT
U.S. PC Makers Face Difficult First Quarter: Industry Outlook
San Francisco, March 24 ( -- Total Entertainment
Network Inc. plans to buy as many as 100 personal computers -- as
soon as prices drop and financing for the online gaming company
comes through.
''We've been delaying purchases,'' Chief Technology Officer
Dave King said.
Total Entertainment isn't alone, and that's weighing on
first-quarter profit at No. 1 PC maker Compaq Computer Corp.,
International Business Machines Corp. and others.
Corporations bought a lot of PCs at the end of 1998 and can
wait for better deals. Some aren't spending until they gauge the
impact of the Year 2000 computer glitch. Others held off in
anticipation of Intel Corp.'s new Pentium III, which the
chipmaker touted weeks before it was available in late February.
The slow start to the quarter means PC makers needed a last-
minute sales pickup. That's looking less likely.
''March doesn't look like it will be a lot better,'' said
analyst Stephen Baker of market researcher PC Data. Preliminary
reports indicate that PC shipments this month aren't rebounding
as much as expected, he said.
That's bad news for Compaq. The Houston-based company will
have trouble meeting first-quarter estimates of 33 cents a share
if March sales didn't improve, analysts said.
Compare that with the fourth quarter, when Compaq had better-
than-expected profit, driven by holiday and year-end buying.
Total PC shipments surged 21 percent in the fourth quarter,
leading to forecasts that demand would carry over into the first,
when sales typically trail off. That didn't happen.
''Expectations were high to begin with and that sets up a
backdrop for disappointment,'' said analyst Ashok Kumar of US
Bancorp Piper Jaffray. ''We were all saying the first quarter
will be different this time. Now we're saying it's similar to
years past and probably worse.''
Unit shipments are forecast to fall 15 percent in the first
quarter from the fourth, according to International Data Corp.
Worldwide PC shipments rose 12 percent last year.
Compaq
When the quarter began, Compaq was expected to have sales of
as much as $9.98 billion. Now analysts have scaled back forecasts
to about $9.4 billion. In the year-earlier quarter, sales were
$5.69 billion, not including $2.96 billion for Digital Equipment
Corp., which Compaq bought in June.
Compaq said orders improved in February after a slow
January. Yet analysts said the growth wasn't enough to offset the
January shortfall. Kumar, for one, said March shipments aren't as
high as expected because dealers are working off extra inventory.
''All of these companies need (a strong) March to have a
good quarter,'' said analyst Dan Niles at BancBoston Robertson
Stephens.
Dell
Even Dell Computer Corp. isn't immune. The No. 1 direct PC
seller and best-performing stock on the Standard & Poor's 500
Index for three years running may be shipping fewer machines than
expected this quarter. At the same time, its average selling
prices are dropping, one analyst said.
That's led at least one analyst to cut profit predictions
and forecast a second straight quarter when sales rise less than
50 percent.
''Fifty percent-plus growth (for Dell) is history,'' said
Kumar. Dell's growth is slowing as Compaq and other rivals sell
more computers directly to customers, imitating a strategy that's
helped Dell vault past competitors.
Dell's sales are forecast to rise about 36 percent to $5.35
billion in the quarter ending April 30, following 38 percent
sales growth in the fourth quarter. Earnings are expected to rise
to 16 cents a share, from a split-adjusted 11 cents.
Less Buying
Part of the problem is that businesses aggressively replaced
older machines for the past three years as newer technology came
out. Now there are few software programs that require new PCs and
more reasons to hold off buying.
Companies like Bayer AG North America, which uses only Dell
computers, have slowed the addition of new PCs. Bill Gaughn, who
oversees technology purchases for Bayer in North America, said
the company has replaced its entire base of PCs since mid-1997,
but is now just renewing leases and doesn't have plans to add new
machines.
That's already hurt companies like Hewlett-Packard Co.,
which in February reported fiscal first-quarter sales lagged
expectations. H-P was particularly hurt by lower prices for
printers and personal computers.
IBM, the world's largest computer maker, is struggling with
slower-than-expected sales of all computers. That includes PCs,
which are being crimped by falling prices, analyst Niles said.
Micron Electronics Inc.'s fiscal second-quarter sales slid
25 percent, and the No. 3 direct seller of PCs reported earnings
this week that dropped in line with reduced expectations.
Ingram Micro Inc., the world's biggest wholesale distributor
of PCs, said it will cut 10 percent of its workforce and warned
that first-quarter earnings will lag forecasts.
Consumers
The companies most likely to benefit this quarter are those
with strong consumer lines. Apple Computer Inc. will do well in
its second quarter ending next Wednesday thanks to its
multicolored iMacs and new, powerful G3 computers. Apple is
expected to earn 57 cents, compared with 42 cents a year earlier,
according to analysts polled by First Call Corp.
Gateway 2000 Inc. also is expected to have higher earnings.
The No. 2 direct seller of PCs is expected to earn 60 cents a
share, according to First Call. Kumar said the company could do
even better. A year earlier, Gateway's profit was 48 cents.
PC unit shipments are forecast to rise about 13 percent in
the second quarter from a year earlier, according to IDC. A
rebound in Asia Pacific and Japan after big declines last year
could help boost shipments.
After that, the outlook gets cloudier. If Year 2000 issues
are resolved early, companies may buy more machines. If not, the
second half could be rocky, analysts said. Total PC shipments are
forecast to rise 14.3 percent in 1999, up 2.3 percentage points
from last year.
1st-Qtr Year-Ago Number of
Company Estimate Earnings Analysts
Advanced Micro -0.55 -0.39 18
Apple# 0.57 0.38 18
Dell* 0.16 0.11 31
Compaq 0.32 0.01 32
Gateway 0.60 0.48 23
IBM 1.41 1.06 21
Intel 1.10 0.81 32
Micron Electronics@ 0.07 0.26 12
*Fiscal first quarter ending April 30
#Fiscal second quarter ending March 31
@Actual results for fiscal first quarter ended March 4, year-ago
results include $156.2 million gain |
