Niles' Warning on PCs, Semis, Sounds Right
By Jim Seymour
Special to TheStreet.com
09/21/2001 01:46 PM EDT
Lehman's Dan Niles is getting some flak over his cuts this morning on PCs and semis. Niles, who has a strong record and doesn't mince words, chopped his forecast of PC sales in 2001 from flat to down 5%. And worse, some say, he cut his estimate for 2000 semiconductor revenues from down 19% to down a whopping 31%, and to flat revenue in 2002, down from his earlier estimate of 12% revenue growth next year.
Hey, back off: I think he's on the right track. Whether PC sales this year are down 3%, 4%, 5%, 6% or maybe even more, I think it's clear that hopes a fourth-quarter sales push could get the year up to flat with 2000 are out the window.
And in semis, I think the industry will do well to hold revenues to only an approximate 30% drop.
This drop isn't coming from a technology rollover, or inventory levels, or any other sophisticated measures. It's a lack of demand, pure and simple.
I think it's pretty clear now that Microsoft's (MSFT:Nasdaq - news - commentary - research) Windows XP will not deliver the much-hoped-for big bump in PC sales in the Christmas quarter. Nothing wrong with WinXP, but while corporations with New York losses are buying replacement PCs hand over fist -- last week Dell (DELL:Nasdaq - news - commentary - research) delivered 5,000 replacement machines overnight to companies hit by the World Trade Center attack -- consumers are likely to keep their current PCs for another six months or more, as we enter the uncertain footing of a war-time economy.
People are thinking about cutbacks, about their own job security, about the depth and length of an almost unfathomable world war against terrorism ... not about getting a faster PC. I would want to be long any PC maker now.
Semis? Not only will revenues fall, but unless they're able to throttle back production quickly, the semi makers are going to have a lot of unsold, aging and rapidly obsolescent inventory on their hands.
It hurts even more that this slowdown is coming during a technology transition, when Intel (INTC:Nasdaq - news - commentary - research) has furiously ramped up production of several speeds of Pentium 4 processors, hoping to push PC makers and consumers beyond the aging, now low-margin Pentium III -- and hoping to take enough market share to stop short the success of Advanced Micro Devices' (AMD:NYSE - news - commentary - research) new Athlons.
Before they come out from under the war clouds, I think many PC makers are going to see their share prices cut to half their levels of early last week, before the terrorists' attacks. Semis won't be hurt quite so much, but they'll be hurt a lot more than they have been so far.
Suddenly semis are looking very expensive.
And Niles is waving the red flag for us. |
