Don't you recognise irony!
Here is WSJ article a few peripheral bits of sector interest:
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March 10, 1999
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Gateway Sees Ad Campaign
Protecting It From PC Slump
By LISA BRANSTEN
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- As shares of personal-computer makers idle, direct seller Gateway is turning to a new marketing campaign to spotlight its innovative financing and Internet-access services.
Amid a choppy day for technology stocks, Gateway rose more than $2 a share in early trading Tuesday, before reversing course to close down 1/16 at 71 5/16 in New York Stock Exchange composite trading.
Meanwhile, the Nasdaq Composite Index slipped 4.68 to close at 2392.94, while Morgan Stanley's high-tech 35 index fell 8.76 to 968.32.
PC manufacturers have suffered this year amid signs of slowing sales from giants such as Dell Computer and Compaq Computer. On Tuesday, Compaq, Dell and Gateway were 35%, 18% and 13% off their 52-week highs, respectively.
On Saturday, Gateway launched the first of at least five television ads in its "Who are you?" campaign. The campaign will also feature print and radio ads. A campaign on consumer research conducted by Gateway found that a third of U.S. teenagers want their own Web page, a third of U.S. kids have never been on the Internet, and only 20% of U.S. companies have a Web address.
The campaign is part of a general effort at Gateway to offer customers services such as Internet access, software upgrades and computer financing in addition to just selling them PCs. Gateway has, for the most part, avoided selling PCs in the fast-growing sub-$1,000 range in an effort to protect operating margins.
Instead, the company has focused on offering services that it hopes will entice consumers to buy more expensive machines. Last month, for example, the company announced it would provide a year of free Internet access with the purchase of most of its consumer PCs.
Last year, the company announced its Your Ware program, through which consumers can buy PCs for as little as $49.95 a month with no down payment. After two years consumers can trade in those machines and apply the value to the purchase of a new PC.
Walter Winnitzki, an analyst at Hambrecht & Quist, thinks that the company will be able to prevent the margin erosion caused by the popularity of inexpensive PCs by selling other products along with the hardware. Ultimately, he said, the consumer PC market is going to look more like the cell-phone market -- where the hardware is subsidized and the real money is made selling services.
"Companies will have to drive more and more revenues not from the initial sale of the hardware, but from the sale of other components such as Internet access and software," he said. "I think Gateway is really aggressively driving changes in the marketplace."
He has Gateway stock rated "buy." Although he has no formal price target, he said that if the company achieved a price-to-earnings ratio closer to the 25% to 30% annual growth he sees for the company, the stock could go to the mid-90s.
But others were more skeptical of Gateway's attempt to use the campaign to succeed in a market increasingly dominated by inexpensive PCs. "I'm not sure [the marketing campaign] can prevent them from having to go into the lower priced stuff, because that's where the growth rate is," said Jim Poyner, an analyst at CIBC Oppenheimer.
By avoiding the sub-$1,000 PC sector, Gateway will "put [itself] in the position of having to sell [its] customer more and more stuff, and sooner or later they are going to realize that," Mr. Poyner said.
Another potential danger, he said, is that as computer prices fall, the manufacturing and shipping costs to direct-to-consumer manufacturers like Gateway will become increasingly onerous. He has Gateway stock rated a "hold."
Tuesday's Market Activity
Elsewhere in the technology sector Tuesday, Advanced Micro Devices fell 1 7/16 to 17 1/2 on the New York Stock Exchange. The chip maker said design problems with its flagship microprocessor will result in a production shortfall and a "significant" loss in its first quarter (see article).
Intel slid 4 5/16 to 115 5/16 on Nasdaq on fears that AMD's shortfall and weakness among PC makers could mean the chip giant will preannounce weak quarterly results. Dan Niles, an analyst at BancBoston Robertson Stephens, said rumors that Intel would pre-announce have circulated since reports from Compaq Computer indicated that PC sales weren't as strong in February as had been hoped for. He said, though, that "March looks like it's pretty much right on track" for Intel.
CBT Group rose 1 7/8, or 16%, to 13 5/8 on the Nasdaq Stock Market. US Bancorp Piper Jaffray analyst Robert W. Peterson raised his rating on the stock of the computer-training software company to "buy" from "neutral." The upgrade, he wrote, stemmed from a "valuation call," rather than the firm's belief that CBT's current management has been successful in getting the company back on track after last fall's turmoil.
Lycos surged 12 3/8, or 15%, to 96 1/4 on Nasdaq. The chairman of major shareholder CMGI resigned from Lycos's board in the wake of Lycos's merger agreement with USA Networks. Lycos said it remains committed to the deal (see article). CMGI slipped 5 1/4 to 194 7/16 on Nasdaq.
Meanwhile, CNET, which surged 24% Monday, added another 7 1/16 to 111 3/16 on Tuesday. The company split its stock 2-for-1 after Monday's close.
Go2Net surged 18 1/8, or 27%, to 84 7/8 on Nasdaq. ING Baring Furman Selz initiated coverage of the Web publisher with a "strong buy" rating. He also set a $100 price target by year-end 1999. In a research report, the analyst said he expects viewership growth to drive compound annual revenue growth or more than 60% through the year 2005 for Go2Net, which owns a number of well-known Web sites, including Silicon Investor and StockSite.
Microsoft added 2 13/16 to 161 13/16 on Nasdaq on a report that the company may be exploring a settlement of its antitrust case. The Seattle Times quoted Chief Operating Officer Bob Herbold: "You never block out the notion of settlement, but we're not going to talk about it publicly." Also, Cowen & Co. cut its rating on the stock to "buy" from "strong buy."
Credence Systems gained 2 3/4 to 20 5/8 on Nasdaq. Credit Suisse First Boston raised its rating on the stock of the chip-equipment maker to "strong buy" from "hold." |
