U.S. Computer Makers Gain From Holiday Sales: Industry Outlook
Hi Drew:
Not bad at all,eh?
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U.S. Computer Makers Gain From Holiday Sales: Industry Outlook
Sacramento, California, Dec. 22 (Bloomberg) -- Packard Bell NEC Inc. and other computer makers are having a happy holiday season, as consumers like Craig and Tracey Ernst put a PC on the family gift pile.
The Ernsts, of Newburgh, New York, relented after more than a year of pleading from sons Patrick, 11, and Kyle, 5, and bought a machine from No. 5 personal-computer maker Packard Bell. They spent about $1,400 for the PC and a printer to help the boys with math, reading and phonics. The Ernsts will use the computer for home finances, getting organized and going online.
No. 1 PC maker Compaq Computer Corp. and top direct-seller Dell Computer Corp. also are enjoying their best quarter of the year. Dell is gleaning $10 million a day in sales on the Internet and Compaq is recovering from price cuts and a backup of machines. International Business Machines Corp. and Sun Microsystems Inc. are benefiting as companies buy big computers to run Web sites and link employees into networks. ''It feels like everybody is set up to meet or exceed estimates,'' said analyst John Jones of Salomon Smith Barney.
That's a far cry from earlier this year.
Most computer makers struggled through the first nine months of 1998 as Asian countries slid into recession and sales dried up in what had been the fastest-growing region.
Adding to the slump was excess PC inventory that had to be sold at cut-rate prices, as well as the popularity of machines that cost $1,000 or less, cutting into profit for their makers. ''Summer was terrible, but it's gotten much better,'' said Brooke Powers, vice president and general manager of systems product marketing for Tech Data Corp., the world's second-largest PC distributor.
Buying Surge
Now, consumers are snapping up more PCs, particularly to tap into the Internet. Almost 60 percent of buyers are choosing the cheapest machines and the rest are buying systems that cost more than $1,000, according to PC Data Corp. ''The Internet is the killer reason people are buying computers,'' said analyst Bruce Stephen of market researcher International Data Corp. That applies to Web surfers who want a machine at home and companies that want more servers to beef up their Web site or set up an online store.
Corporations also are making last-minute purchases as they look to use up budgeted funds before year's end. And the looming Year 2000 glitch is encouraging businesses to buy new computers that can recognize the date as 2000 and not 1900.
Even Asian sales are ticking back up in some cases. That's prompted IDC to forecast that PC unit shipments worldwide will rise 12 percent in the quarter, when about a third of all PCs are sold.
PC Makers
Compaq will report improving results, though earnings are still lower than they were a year ago. The Houston-based company its pared PC inventory to about a three-week supply from more than 10 weeks early this year. The melding of Digital Equipment Corp., which Compaq bought in June, also is expected to add to earnings.
Compaq is forecast to report profit of 36 cents a share, the average estimate of analysts polled by First Call Corp. That compares with pro-forma profit, including Digital, of 42 cents a year ago. Sales may rise as much as 9 percent to $11.6 billion, analysts said.
Dell, the world's No. 3 PC maker, is expected to report a 43 percent rise in sales to $5.3 billion for the quarter ending in January. Earnings at the Round Rock, Texas-based company will rise to 31 cents a share from 21 cents, according to First Call.
Apple Computer Inc., the No. 7 PC maker, is being boosted by its $1,299 iMac home computer. A new financing program introduced last month is attracting buyers.
Apple sold 278,000 iMacs in the first six weeks the PC was available. Analysts expect 535,000 of the rounded blue machines to be shipped this quarter. Earnings at Cupertino, California- based Apple are expected to more than double to 68 cents from 33 cents. ''People like the product -- it fits a need,'' said analyst Lou Mazzucchelli of Gerard Klauer Mattison, who rates Apple ''buy.'' He expects profit of 78 cents and sales of $1.8 billion.
Servers, Mainframes
Makers of high-performance computers will do well, thanks to customers like Shaygan Kheradpir, vice president of information technology at GTE Corp.
Kheradpir spent most of his fourth-quarter computer budget on powerful servers from Hewlett-Packard Co., IBM and Sun Microsystems to help move increasing volumes of data around the corporate network. He plans to buy faster machines to replace older ones next year and will add more Internet software.
Similar purchases are adding to earnings at IBM, the world's largest computer maker. Armonk, New York-based IBM also is benefiting from PC sales and strong revenue in its fast-growing services business.
Sales in IBM's services unit are expected to increase more than 20 percent, while software is forecast to rise 10 percent and hardware will be 6 percent higher than a year ago. ''IBM will at least hit if not exceed my estimate of $2.50'' in earnings per share, said Salomon's Jones.
Sun Shines
Palo Alto, California-based Sun is selling more of its powerful machines as companies flock to get on the Internet. The No. 1 maker of workstations is forecast to report earnings of 66 cents, up from 57 cents.
Palo Alto, California-based Hewlett-Packard, the No. 3 computer company, has struggled with the slowdown in Asia, which has hurt its test and measurement business. Printers and PC sales are expected to help mitigate that decline.
Still, H-P's earnings in the quarter ending in January are forecast to fall to 82 cents a share from 86 cents a year ago.
Analysts expect corporate buyers to step up spending on new hardware and software until about mid-1999, when most of the budget will be shifted to ensure that the Year 2000 problem is fixed.
Companies also will slow purchases to wait for a new version of Microsoft Corp.'s Windows NT networking software, called Windows 2000, due late next year. That will make for a strong first half, with the possibility of weakness toward midyear.
4th-Qtr Year-Ago Number of Company Estimate Earnings Analysts Compaq 0.36 0.42 31 IBM 2.45 2.11 21 H-P* 0.82 0.86 22 Dell^ 0.31 0.21 30 Gateway 0.78 0.59 22 Apple# 0.68 0.33 18 Sun Micro! 0.66 0.57 21 * Fiscal first quarter ending Jan. 31 ^ Fiscal fourth quarter ending Jan. 31 # Fiscal first quarter ending Dec. 25 ! Fiscal second quarter ending Dec. 27 Estimates provided by First Call Corp.
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