Thread: article on PC industry in thestreet.com:
Top Stories: As PC Growth Wanes, Merrill Looks
to the Future
By Eric Moskowitz
Staff Reporter
9/17/98 1:10 PM ET
Over the last decade, personal computers have served as unstoppable
engines of growth, pushing technology stocks into Wall Street's upper
echelon, and in the process making jillionaires out of CEOs we now know
simply as Bill and Andy and Michael. (That's Gates, Grove and Dell, by
the way.)
But lately PC companies are exhibiting signs that they are just too
exhausted to lead the charge for much longer. Customers are deciding to
ignore the brand names and do a bit of comparison shopping and bargain
hunting, so to speak.
Clearly, technology will remain a key engine for growth in the U.S. -- but
what will replace the personal computer? One Wall Street brokerage
house seems to have come upon the answer.
"The communications equipment industry is usurping PCs as the key driver
of semiconductor growth," said Merrill Lynch in a report released Thursday
titled "Technology Insights." These are not opinions of lightweights --
Merrill's 11 analysts include periennal Institutional Investor all-stars such as
PC hardware guru Steven Milunovich, semiconductor bear Tom Kurlak,
networking analyst Joe Bellace and Internet bull Jonathan Cohen.
Merrill star Kurlak -- long a bear on such key semi stocks as Intel
(INTC:Nasdaq) -- expects demand for communications equipment to
benefit such companies such as Broadcom (BRCM:Nasdaq), PMC Sierra
(PMCS:Nasdaq) and Vitesse Semiconductor (VTSS:Nasdaq). (Merrill
hasn't participated in any of these companies' offerings.) "The shift in end
markets should result in growing fragmentation of the industry," Kurlak also
predicted.
While analysts and technology watchers have been warning of the
deflationary moves in the PC industry, another Merrill star, Milunovich,
argues that the next technology trend will be a move from general purpose
to specialized computing.
Hence appliances. These are "specialized, single or limited function
devices that are inexpensive and reasonably intuitive," noted Milunovich.
The future will belong to two types of appliances: home appliances such
as handheld PCs and digital set-top boxes; and thin servers for the small
business office.
Appliances are the threat to the status quo, including the Wintel duopoly
and PC vendors, said Milunovich. As for winners, Milunovich picked out
IBM (IBM:NYSE), EMC (EMC:NYSE), Network Appliance (NTAP:Nasdaq)
and Sun Microsystems (SUNW:Nasdaq), if Sun's Java language becomes
a hit. (Merrill hasn't participated in any recent underwritings for these
stocks.)
Of course, not everyone agrees with Merrill that the PC industry is losing its
leadership position. "I think there is plenty of juice left in the PC market,"
said Roger Kay, a PC analyst with tech researchers International Data
Corp. "The Internet and the international market will continue to be drivers
for growth for PCs for some time to come."
Kay may be right, but the facts speak for themselves: The peak for PC
growth was all the way back in 1995, when sales grew 25% worldwide
thanks to the release of Microsoft's (MSFT:Nasdaq) Windows 95. This
year, even with the hot-selling Windows 98 exceeding sales of Windows
95, PC sales are only expected to be 12% worldwide, estimated IDC. "It's a
maturing market," conceded Kay, who, like the PC industry itself, can't
believe the good times may be ending.
The times are a-changing.
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