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To: Patrick E.McDaniel who wrote (50749)	7/11/1998 7:49:00 AM
From: Jerry Miller	Respond to of 176387

Computer results seen mixed, focus on second-half July 10, 1998 04:38 PM By Eric Auchard NEW YORK, July 10 (Reuters) - Computer makers are expected to turn in mixed second-quarter results, but with bad news about inventories and the Asian economic crisis already figured in, investors are focused on a brighter second half. Last month's fears of possible earnings disappointments have been brushed aside in recent days as computer stocks have rallied, with Compaq Computer Corp. and Dell Computer Corp., the most active stocks on the New York Stock Exchange and Nasdaq, respectively. "These stocks have been at the bottom for a while," Salomon Smith Barney analyst Richard Gardner said of the group, which has endured thinning profits on already tight margins due to a glut of inventory earlier in the year. "People are expecting things to pick up in the second half and for the companies to show that inventory levels are under control," he said. Wall Street will watch Compaq's first-off-the-mark July 15 report for clues on overall industry growth but mainly on how quickly Compaq can tie up the integration of Digital Equipment Corp., an $8.4 billion acquisition deal that closed June 11. While Compaq has eliminated any mystery over second-quarter profits by pre-announcing that the company expects break-even operating profits, the reported results will be confused by the inclusion of partial quarterly Digital results since mid-June. In addition, Compaq has said it will take an estimated $1.5 billion to $2 billion charge to cover restructuring costs including plans to cut 15,000 Digital staff, and another, unspecified charge to cover 2,000 job cuts at Compaq and its Tandem unit. "The numbers will be largely academic," Cowen analyst Richard Chu said, not only for the second quarter but also for third-quarter results, which Compaq has called "transitional," leading analysts to focus on a revival in the fourth quarter. "The uncertainty is more about what (Compaq management) will say about the progression of the (Digital) integration and what it will mean for earnings in the fourth quarter and fiscal 1999," Montgomery Securities analyst Kurtis King said. This time around, personal computer makers are expected to report headway in slashing inventories, despite a technology transition in the second quarter to new Intel Pentium II chips that left older computers outdated and fueled a continuing price war. In prior quarters, PC makers had stuffed distributors with up to eight weeks and more of excess computer inventory in anticipation of sales that failed to materialize, leading to a bruising round of first-quarter earnings disappointments. Compaq committed to slashing inventory levels to four weeks by the end of the June quarter, down from the seven weeks of supply Compaq reported at the end of the March quarter. As part of these efforts, Compaq shut several PC manufacturing lines at its Houston base in the first two weeks of April. Gateway 2000 should meet expectations for double-digit earnings growth as it continues to find success selling build-to-order PCs directly -- with little excess inventory -- targeteted to second- and third-time computer buyers. While confined to a niche role among PC makers until its highly anticipated new consumer models ship in August, Apple Computer Inc.'s June results are expected to show a third quarterly profit in a row, thanks to cost-cutting and rapid sales of its products aimed at professionals, analysts said. Larger computer systems makers like IBM Corp., Hewlett-Packard Co. and Sun Microsystems Inc. have been hurt by Asia's downturn and had to look to other businesses for off-setting revenues or to find expense savings to preserve profits. IBM is expected to see only tepid second-quarter earnings growth, amid the slowdown in Asia, further revenue declines in its troubled PC business and a transition in its core mainframe business to a new product line set to ship in August. However, a program that encourages customers to continue buying older IBM machines in the interval with the promise they can upgrade to the more powerful "G5" systems when they become available should help offset revenue declines, analysts said. The company's services business -- responsible for one-third of IBM revenues -- is benefiting from corporate mergers that force companies to integrate unrelated computer systems and from accelerated growth of Year 2000 repair work. "What you have with IBM is the ability to make up with the apples what it lost on the pears," SoundView analyst Gary Helmig said of the diversified computer giant's capacity to offset sluggish results in one unit with growth in others. Although Japan's flagging economy is likely to hurt revenue growth at computer workstation maker Sun Microsystems Inc, but this is not expected to depress the company's June quarter earnings. However, Hewlett-Packard, which does not report until August, is expected to see little earnings growth and has been under pressure to slash operating costs. In recent days, the company has guided some analysts to lower estimates. "It looks like a pretty anemic quarter for Hewlett," Salomon Smith Barney's John Jones said. The following list of companies includes First Call estimates for the upcoming quarter compared with results from the same quarter a year-ago. Fiscal quarters varying from calendar quarters are noted and losses are in parentheses: Apple Q2 $0.33 $(0.44) July 15 Compaq Q2 $0.00 $0.30 July 15 Dell Q2 $0.46 $0.30 Aug 18 Gateway Q2 $0.43 $0.36 July 23 Hewlett-Packard Q3 $0.63 $0.58 Aug 17 IBM Q2 $1.49 $1.43 July 20 Micron ElectronicsQ4 $0.01 $0.20 Sept Sun Microsystems Q4 $0.71 $0.61 July 16 ** Digital merged into Compaq on June 11. Compaq results will include the contribution from Digital for the final two-and-a-half weeks of June. CPQ DELL GTW AAPL IBM SUNW HWP DELL MUEI ((-- New York newsdesk, 212-859-1840)) REUTERS