unlike CPQ, I having pricing discipline...the mkt always gives me another chance
Monday March 9, 7:17 pm Eastern Time
FOCUS - PC stocks tumble on price war worries-analysts
(Recasts, updates stock prices)
By Richard Melville
NEW YORK, March 9 (Reuters) - Personal computer stocks tumbled on Monday as Wall Street braced for a PC price war.
With sub-$1,000 machines the hottest sellers in the consumer market, PC makers appear to be using the same price-cutting
tactics in the lucrative corporate market.
Stiff price competition prompted a warning Friday from Compaq Computer Corp., the world's leading PC maker, that it would
break even in the first quarter -- not post a profit as investors on Wall Street had expected.
Analysts said Compaq has signalled a willingness to sacrifice profits in the short run to try to take business from competitors,
especially Dell Computer Corp.
''The bottom line right now is Compaq has nothing to lose,'' said BancAmerica Robertson Stephens analyst Dan Niles. ''All
you had to do was listen to their conference call (Friday) to know they've taken aim at Dell.''
Similar tactics helped big PC makers squeeze out smaller suppliers in 1997. But now, with the smaller players gone, the battle
will pit market leaders against one another.
''The top-tier players are now turning more against each other and throwing some of their price discipline to the winds,'' J.P.
Morgan analyst Daniel Kunstler said in a note Monday.
Compaq stock tumbled $2.44 to $25.25 on the New York Stock Exchange and dragged other PC makers down with it. Dell
lost $4.25 to $64 on Nasdaq and Gateway 2000 dipped $1.44 to $36.31 on the NYSE. IBM lost $2.19 to $96.19 and
Hewlett-Packard fell $1.31 to $60.25.
In its warning, issued after the market closed on Friday, Compaq cited sluggish sales to corporate customers in North America.
Analysts who cut profit forecasts for Compaq on Monday also trimmed estimates for Dell, a sign the two companies -- which
are more focused on PCs and PC servers than competitors IBM and Hewlett-Packard Co. -- face more risk from a price war.
Dell and Compaq have also waged a protracted battle for leadership in the corporate desktop computer market.
A Dell spokesman said the company tends to focus on higher-priced, custom-tailored machines that consumers and businesses
order directly, adding that its prices were often higher than the rest of the industry.
The latest round of price-cutting is thought to have started with a company whose share of the PC market had been slipping,
International Business Machines Corp.
IBM is planning a $799 desktop system for the corporate market built around an Intel Corp. [Nasdaq:INTC - news] chip. At
that price, the machine would be comparable to the cheapest systems aimed at consumers. The Intel chip is a switch, because
the least-expensive machines usually include chips from Advanced Micro Devices Inc. [NYSE:AMD - news] or National
Semiconductor Corp [NYSE:NSM - news].
Analysts said IBM may be taking advantage of its profit warning in January, when it said unusual factors such as marketing
expenses related to the Nagano Olympic games would keep it from meeting earnings estimates in the first quarter.
That warning, like Compaq's, may have freed IBM to sacrifice near-term profits for market share gains, analysts said. |
