Computer winners, losers gap widens
Friday, April 25, 2003
SAN FRANCISCO, California (REUTERS) -- <FONT COLOR=BROWN>In technology, the well-known aphorism applies: The rich get richer and the poor get poorer.
Financial results from the biggest computer and storage companies are the latest indication that, after two years of a global decline in technology spending, the field is increasingly split between winners and losers.
Companies that were market leaders before the technology build-up of the 1990s are strengthening their positions, analysts said, while some companies that were leaders during the boom are finding it hard to grow.
In the former camp, analysts consider International Business Machines Corp., <FONT SIZE=7>Dell</FONT> Computer Corp., and Hewlett-Packard Co. contenders. In the latter camp some put Gateway Inc., Apple Computer Inc. and Sun Microsystems Inc.
"Sun, Apple, Gateway: you can categorize those companies as kind of laggards," said Brent Bracelin, an analyst at Pacific Crest Securities Inc. "You are starting to see leaders entrench their positions and they maybe have been the same companies that led the industry 10 years ago."
He cited IBM and storage machine maker EMC Corp. as the old-guard technology companies that have pulled ahead, joined by Dell, a relative newcomer.
Market share data released Thursday by research firm IDC showed that Dell had moved past HP in the first quarter to regain its title as the world's largest PC maker.
Thriving or surviving?
While IBM's overall hardware revenue slipped slightly in the first quarter, analysts said it showed impressive gains in some areas. Storage hardware sales were up 6 percent and three server lines grew by between 15 percent and 22 percent even as its mainframe business declined.
By contrast, Sun Microsystems, the formerly high-flying maker of computers that manage networks, saw revenue decline 10 percent in its third fiscal quarter from a year ago. That marked the eighth straight quarterly decline.
Santa Clara, California-based Sun has had difficulty generating revenue growth, but has kept costs under wraps. And margins could come under pressure from servers sold by rivals HP, IBM and, to some extent, Dell, but so far have held up reasonably well.
However, Sun is still a cash-flow king, generating $379 million in its third quarter which it reported on Wednesday, marking the 34th consecutive quarter of positive cash flow from operations.
"Sun can survive, but can it thrive?" asked Merrill Lynch analyst Steven Milunovich in a note to clients on Thursday. "Probably not. We're not popular in Santa Clara for our comment that Sun could become irrelevant, but we don't see much to change our mind."
Companies that have a clear message for customers are doing well amid weak demand, according to one analyst.
"IBM has gone for the total solutions outsourcing model, which has worked pretty well for them. Dell has gone for lowering their production costs to constantly fight the cost curve," said Sameer Bhasin, a technology analyst at Okumus Capital, a $400 million hedge fund.
IBM's stock price is about flat with where it was at the beginning of 2001, and Dell's shares are up 70 percent.
By comparison, Gateway is off 70 percent, Sun is off 88 percent, and Apple is off 1 percent in the same period.
"I think those companies that can go and demonstrate the value proposition more effectively to their customers in a down economy will survive, and people like Sun will get pushed out," Bhasin said.
Sun designs many of the components of its server and software itself, including the microprocessors and operating systems, while Dell, HP and IBM buy some hardware and software parts from suppliers such as Intel Corp. and Microsoft Corp.
The PC battle
Meanwhile, Apple, known for its sleek Macintosh computer designs, innovative software programs, and high prices, is treading water with 2 percent share of the global personal computer market.
Apple's sales of its PowerMac desktop PCs have declined 40 percent in the past two years, wrote Merrill Lynch analyst Richard Gardner in a research note on Thursday on Apple's second-quarter results.
"We believe the decline also reflects a migration away from the Mac by many professional customers to more cost-effective 'Wintel' (Windows-based) systems which now support all of the key professional applications," Gardner wrote.
Gateway, meanwhile, posted its ninth loss in 10 quarters on Thursday, hurt by weak demand and stiff competition from its larger rivals. Revenue fell 15 percent to $844.5 million. |
