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June 14, 2001
Dow Jones Newswires
SMARTMONEY.COM: So Where's That PC-Market Rebound?
By MONICA RIVITUSO
NEW YORK -- With so many industries tied to the health of the PC market - chips, chip equipment and software, to name a few - there's a lot riding on that second-half recovery everybody keeps talking about. The problem is, it's looking less and less likely all the time.
While the market enjoyed Intel's (INTC) and Advanced Micro Devices' (AMD) cautiously optimistic comments about PC sales improving by the end of the year, several analysts are beginning to think things actually worsened for the industry in April and May. Of course, the second quarter is hardly a robust time for computer sales. But various indicators - from retail sales to inventory levels to shipments of Taiwanese motherboards - are all flashing ominously weak signals.
Roger Kay, director of client computing at market-research firm IDC, says that while Alan Greenspan isn't using the "R" word, he considers the PC industry to be in a recession. With consumers pulling in their horns on big-ticket purchases, PC sales are getting flattened. In April, retail sales of PCs fell 30% or so from a year ago, according to market-research firm NPD Intelect. Don Young, a four-time Wall Street Journal All-Star analyst at UBS Warburg, told clients in a conference call Monday that any glimmers of hope for PC sales certainly aren't coming from the U.S. "We keep looking for some signs of life," he said, "and we don't get it." The numbers don't lie: Last week, IDC cut its 2001 U.S. PC-shipment forecast from 2.2% growth to a decline of 6.3%.
Meanwhile, halfway across the globe, things don't look any brighter on the Taiwanese manufacturing front. Experts pay close attention to Taiwanese motherboard, notebook and component makers because they supply all the big PC manufacturers in the U.S. and thus are important indicators for PC demand. In May, motherboard and notebook shipments fell 6% sequentially, according to Merrill Lynch, instead of the expected 3% decline. May shipments typically show a seasonal gain in the mid-single-digit range, according to Merrill. And those disappointing figures follow a weak April. Shipments of PC motherboards and notebooks fell 27%, compared with the usual 15% to 18% seasonal decline.
For the year, IDC now sees worldwide PC-unit sales growth at 5.8%, much lower than its previous estimate of 10.3%. (That's more optimistic than some, though; Merrill Lynch expects just a 3% sales bump worldwide.)
With sales deteriorating as they are, Kay thinks big guns like Intel and Microsoft (MSFT) are painting a Pollyannaish picture for the second half. "You hear Intel saying they expect it's going to get better, you hear Microsoft saying [Windows] XP is going to stimulate sales," says Kay. "But we see there being only a mild seasonal uptick in the second half - not a very strong one. And it won't be enough to pull out the poor performance in the first half."
In fact, not only are there few signs of improvement in U.S or European sales, but UBS Warburg's Young maintains that there was increasing evidence in April of a renewed U.S. inventory problem to boot. Inventories at all the major U.S. vendors came in higher than expected, he said. And for an industry that's supposedly just emerging from a massive inventory overhang, that's particularly worrisome. "I thought we'd put this [inventory issue] behind us awhile ago, but it's popped up again," Young said.
Of course, it's important to remember that this is the worst time of the year for PCs, with holiday sales a distant memory and the back-to-school season yet to start. "The second quarter is always a weak quarter," says Stephen Baker, of NPD Intelect. "There's not a lot of promotional opportunities for PCs, and, as a consequence, it's hard to draw any conclusions from anything that ever happens in the second quarter. It really is a very iffy time of year."
Problem is, this year, "iffy" has taken on a whole new meaning.
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