From the 10/12/98 edition of Barrons, The Trader column on page MW3 of the print version;
Could conditions get any worse for the technology sector? Silly question. Of course they can. Consider the recent prognostications of Forrester Research, a Cambridge, Massachusetts, consulting firm, on the outlook for personal-computer demand. Their forecast starts with some good news. In 1999, Forrester contends, companies will quicken PC spending in order to toss out older hardware vulnerable to the dreaded Year 2000 bug. Forrester says PC units shipped in the U.S., including home and business desktop, laptop and server models, should jump more than 14%.
But here's the bad news: Before the end of 1999, Forrester asserts, PC purchases will slow dramatically, as companies seek to avoid screwing up newly Y2K-compliant systems. By mid-2000, Forrester says, PC makers who had boosted production to meet strong 1999 demand suddenly will have excess capacity. Unit volumes in 2000 will drop below 1999 levels, they predict. As demand falls, PC makers will slash prices. Revenues, Forrester asserts, will shrivel.
"Corporate buyers are pretty conservative, by and large," says Carl Howe, Forrester's director of computing strategies, and the author of Forrester's gloomy new forecast. "They've got to get nonY2K-compliant stuff out of there. They'll kill off PCs running Windows 3.1 or DOS as much as they can. Anything not built in the last two years is likely to be non-Y2K compliant. In 1999, Dell, IBM, Hewlett-Packard, Compaq and Gateway will all benefit from higher desktop computer sales." Overall, Forrester expects U.S. PC revenues next year to inch up to $55.2 billion, from $53.5 billion this year.
However, the scenario shifts by next year's second half, Forrester says. "IT managers will be conservative going into the year 2000, and the worries don't evaporate January 1," says Howe. "Our view is we'll see a freeze on corporate computer buying at some companies through mid-2000." Unit demand should start to recover in 2001. But with pricing expected to crumble, Forrester expects it to take even longer for revenues to return to earlier peaks.
"The best of times," warns Howe, "will be followed immediately by the worst of times." Forrester expects U.S. PC revenues in 2000 to plunge about 14%, to $47.4 million, with zero growth in the subsequent two years. The fallout would be widespread. "Who will get hurt? Look back into the supply chain," Howe says. "It's anyone who has a per-PC revenue model." He sees problems for peripheral makers, like Creative Labs and Lexmark, consulting firms, like Vanstar, and component companies, like Intel. Even real-estate brokers who cater to the high-tech industry will suffer, Howe maintains. |
