Maybe you should study up a bit. First, PC sales didn't fall of a cliff, they are about what they were last year. Some PC manufacturers are actually selling more PCs this year than last.
It's looks like my assumption about declining PC sales impacting MSFT's XP launch was correct. I didn't have the evidence at the time to support it, but I do now:
dailynews.yahoo.com
Friday July 20 5:03 PM ET
PC Sales Fall for 1st Time in Years
By Peter Henderson and Duncan Martell
SAN FRANCISCO (Reuters) - Personal computer sales fell worldwide for the first time in 15 years in the second quarter -- and it may get worse before it gets better.
``This industry is in turmoil,'' International Business Machines Corp. Chief Financial Officer John Joyce said this week. ``There is extreme price pressure, excess inventory, and manufacturing capacity in this industry.''
No. 1 chipmaker Intel Corp., whose microprocessors are the primary computing engine for about 80 percent of PCs, has said there are signs of some recovery in the second half. But a growing number of voices say that is wishful thinking.
``There's hope, and then there's fact,'' said Lehman Brothers analyst Dan Niles. ``I don't see a lot of growth in the third quarter vs. the second. My feeling is that people are going to have a tough time keeping it flattish, and it may go lower than the second quarter.''
Apple Computer Inc. Chief Financial Officer Fred Anderson was just as bleak.
``We haven't seen any signs of an upturn in the consumer PC market,'' he said after announcing the last quarter's results.
Parents and students usually rush to buy computers for the new school year, but maybe not this time, he said: ``As far as a seasonal recovery, we aren't counting on one.''
The chief financial officer of Gateway Inc., which also sells mostly to the hard-hit U.S. consumer market, said he did not know if the boom times will ever come back.
``The overall U.S. consumer PC market has declined each of the last three quarters -- that's the first time that's ever happened,'' Gateway's Joseph Burke said in a telephone interview.
``We are not confident that it's necessarily going to reverse itself back to historical levels,'' he said.
Shares of Gateway dropped 25 percent to $10.99 on Friday, their lowest level in nearly five years, reflecting pessimism about the industry and the company.
The American stock exchange Technology Hardware Index .HWI) is down 21 percent this year -- Gateway is off nearly 40 percent -- compared to a drop of about 8 percent for the Standard & Poor's 500 index .SPX).
Dell Computer Corp. is up 60 percent this year, and Apple shares have risen 44 percent, although both are more or less half the price they were a year ago before the bottom fell out of the technology market.
Niles said many executives and analysts were pushing their hopes for a recovery into the fourth quarter. But he said that weak demand was spreading around the globe and may undercut chances for a strong finish for the year.
``Now I hear, well, maybe Q3 is not going to be as good as we thought, but Q4 is going to be just great,'' he said. ``What I'm waiting for is if in Q4 Europe and Asia are in full blown roll-over mode, much like we were in Q1 and Q2. Things will get really fun then.''
CUTTING PRICES AND JOBS
Dell has been leading the PC industry into a price war -- and winning market share overall. Dell is the only major PC player to grow in the second quarter, and Chairman and Chief Executive Michael Dell has pledged to keep the pressure on.
``Dell is growing at about 20 percent worldwide, vs. the rest of the companies in the top 5, who were down,'' Dell told Reuters in an interview. ``So we're gaining share. I think that's going to continue.''
While that strategy has benefited Dell -- allowing it to surpass Compaq Computer Corp. as the No. 1 PC maker worldwide, it has cut profit margins throughout the industry.
To shore up profits, PC makers have been cutting jobs. Analysts said they fear this could in turn undercut the ability to sell new products that could boost growth.
``Vendors continue to opt for price-cutting rather than changing PC design to stimulate growth,'' said Gartner Dataquest analyst Todd Kort. ``Without a major shift in the PC industry structure, future sustained high-growth rates are improbable.''
In addition to economic problems, Microsoft Corp. expects PC buyers to pause ahead of the Oct. 25 release of Windows XP (news - web sites), the highly touted new version of its dominant operating system.
On Thursday, Microsoft forecast that its sales would fall 6 percent to 9 percent in its first fiscal quarter ending in September from the June quarter.
``We're expecting the first quarter of fiscal 2002 to experience relatively soft demand in PCs as people wait for Windows XP,'' Chief Financial Officer John Connors told Reuters.
INTEL MODERATELY BULLISH ON 2ND HALF PC SALES
While Microsoft was quite guarded in its assessment of second-half PC sales, No. 1 chipmaker Intel Corp. was bullish by comparison.
While not commenting directly on overall PC sales for the full year except to refer to market research forecasts, Intel executives said on Tuesday that the company was now confident of a stronger, seasonal second half. That's because microprocessor shipments rose 6 percent, or about 1 million units, in the second quarter from the first.
``This gives us confidence that the stronger seasonal second half that we typically experience will happen,'' Intel's Chief Financial Officer Andy Bryant said in an interview.
Advanced Micro Devices Inc., Intel's chief rival in the market for microprocessors, has said it believes that microprocessors have, historically, led the chip industry out of a slump, and it should be no different this time around. And that should mean a slight pick-up in PC sales.
Intel has left itself a wide margin for error, with revenue guidance for the third quarter ranging from $6.2 billion to $6.8 billion.
Niles said the jump in shipments of microprocessors in the second quarter, when PC sales were down, was not a good sign.
``If PC shipments were down 7 percent sequentially, and Intel microprocessor shipments were up 6 percent sequentially, that means Intel shipped 13 percent more microprocessors than got consumed,'' he said.
Intel stock is down 4 percent this year, while the Philadelphia Semiconductor Index is unchanged for the year. AMD shares, by comparison, have risen 23 percent year to date.
Michael Dell suggested that his own growing business explained some of the rise in microprocessor sales at Intel, which is its sole supplier.
``Our shipments were up 20 percent year-over-year, so a lot of it was us,'' he said. ``We're the biggest personal computer company in the world so we use a lot of them.''
But Niles pointed out that Dell only consumes roughly 13 percent of all microprocessors globally.
``There's a lot more microprocessors shipped out in the second quarter than there was demand for them,'' he said, pointing to AMD, which also showed a 5 percent sequential rise in microprocessor shipments.
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And this is already impacting MSFT's stock price.. Revenues are decreasing, something that has not happened before in MSFT's history. The company is too big, too bloated with options, and as the price declines, more ISO's will have to be issued or repriced to match the value they currently hold.
And options that have been held long-term from early employees and management will get cashed in (since options can only be held generally for no longer than 10 years).
And then there's that issue about those liabilities that grow greater with every lost dollar in equity value.
Hawk |
