"Our sources in the value-added reseller business
tell us that Compaq (CPQ), which has instituted
special rebates for its servers, might be waffling on
its discounts. That's a bad sign, indicating that
Compaq's performance may be worse than
analysts' forecasts."
March 22, 1999
Earnings worries hit
PC stocks
By Marius Meland
Indexes (Mar 22, 1999 5:00 PM)
DJIA
9891.00
-13.00
-0.13%
S&P 500
1297.01
-2.28
-0.18%
NASDAQ
2395.92
-25.35
-1.05%
EW YORK. 1:00PM EST—Computer stocks
continued to weaken today amid concerns of
softer sales in the industry.
Fear is taking hold after several analysts, worried
by the pressure on bottom lines, downgraded their
earnings forecasts for some of the top PC makers.
The latest victim: Dell (nasdaq: DELL), whose
share fell sharply today after Donaldson, Lufkin &
Jenrette lowered its earnings and revenue forecast
for the computer maker. DLJ analyst Kevin
McCarthy cut his earnings estimate for the first
quarter to 15 cents per share from 17 cents and
his sales estimate to $5.35 billion from $5.5 billion.
The setback for Dell follows fresh on the heels of
International Business Machines' (nyse: IBM)
steep fall on Friday. IBM's share fell 5% after
Morgan Stanley analyst Thomas Kraemer lowered
his price target on Big Blue, citing worries about
revenue growth. But Kraemer Monday maintained
his $1.42 a share earnings estimate for the quarter,
saying that improved gross margins in servers and
hard-disk drives will help offset any revenue
decline.
Meanwhile, BancBoston Robertson Stephens
analyst Dan Niles cut his earnings estimate for
IBM's first quarter to $1.37 per share from $1.60
and the full-year forecast to $8.50 from $8.90.
Computer stocks have weakened sharply since
January amid concerns about weaker earnings.
Most PC stocks are down roughly 40% from their
52-week highs set in January. Dell, Compaq
(nyse: CPQ) and Apple (nasdaq: AAPL) are
down about 40%, while Gateway (nyse: GTW)
has lost about 20% since its peak. IBM, a
diversified computer company with limited
exposure to the PC market, is down about 15%.
Even though overall personal computer unit sales
seem to be doing well, revenues growth is coming
under pressure. Forbes Digital Tool sources in
Taiwan reveal that a PC which sold there for
$1400 last year is now selling for about $900 at
present. Many Asian white-boxmakers are
experiencing a 30% decline in their business in
dollar terms.
This decline is likely to show up in the
performance of U.S.-based PC makers as well.
Our sources in the value-added reseller business
tell us that Compaq (CPQ), which has instituted
special rebates for its servers, might be waffling on
its discounts. That's a bad sign, indicating that
Compaq's performance may be worse than
analysts' forecasts.
Piper Jaffrey hardware analyst Ashok Kumar cut
his estimates last week on these inventory-related
concerns. He thinks that there is severe inventory
overhang from the December quarter and that it
"will cause a significant revenue and earnings
disappointment, even relative to revised estimates."
Kumar has lowered his first quarter earnings per
share estimate for Compaq from 35 cents to 20
cents a share. The new forecast is based on
revenues of $9.4 billion, down from $9.6 billion.
-- Om Malik contributed to this story.
Company
Price ($)
Change ($)
DELL
37.56
-2.69
CPQ
30.06
-0.69
GTW
67.94
-0.56
AAPL
33.06
-0.44
IBM
168.06
-0.5
Prices as of publish time.
Price change from prior day's close.
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