Paul, thread, positive article from Electronic News saying PC inventories may have been cleared, clearing the way for sales to go on an uptick. Courtesy Derek Cao from over on AMAT (hasn't posted here for a while, yo, Derek!).
Said, however, semiconductors can't expect full-blown recovery until Asia/Pacific crisis is over, probably well into 1999. Intel in the 2Q results said Asia/Pacific was relatively flat re 1Q98. IMO, Asia and Japan will not fall behind in the technology race and will also show an uptick in PC sales. Cultural thing. Again, my opinion.
Expect Europe to be the star this time (because they've been down?).
sumnet.com
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Uptick In PC Sales?
Path may be cleared for turnaround as signs of life surface; recovery still a
ways off
By Jim DeTar and Carol Haber
San Jose, Calif.--When the PC sales slowdown hit last year, distribution channels became
choked as microprocessor companies tried to push through product in a slowing market.
Much of that inventory has apparently been cleared from the channel, according to industry
executives.
Does this mean that there is an uptick in PC sales? Industry executives and knowledgeable
observers say the path has been cleared for recovery and there are signs of a near-term
uptick. However, many still say that any full-blown semiconductor market recovery will have
to wait for improved market fundamentals, notably improvement in the ongoing Asia/Pacific
financial crisis, probably well into 1999.
The transition from Intel's Pentium to the Pentium II is now complete, taking some of the
pressure off PC vendors and enabling them to concentrate on selling into the upcoming
back-to-school and holiday season market. In addition, recent positive earnings reports from
Apple, Compaq, Microsoft and others, and some comments from Intel (see related story, page
50), also served as an indication that PC sales may be rebounding.
Nevertheless, other expected market drivers, such as the recent long-expected introduction of
Microsoft's Windows 98 operating system, have not had as dramatic an effect in spurring
sales as some had hoped. Well-known industry analyst Drew Peck of Cowen & Co. said it
will take six weeks to know if the perceived uptick is sustainable or not.
Doug Andrey, director of the Semiconductor Industry Association's Industry Statistical
Programs, said he heard optimistic talk in the halls at last week's Semicon/West conference
in San Francisco (July 12-14)/San Jose (July 15-17), but he said the SIA has no hard numbers
yet that would corroborate that there is a firm recovery in place.
When asked specifically about industry executive comments about optimistic signs, he
commented: "I have heard that, too, in the last couple of days. But I can't tell you it's anything
beyond hopeful expectation. I don't have any new numbers. Much of the debate was focused
on when the turnaround will happen and what can we look for.
Looking For A Symbol
Noting that, " I can't predict a turnaround point," Mr. Andrey added that, "In this environment
everyone is looking for a symbol of the recovery."
Jonathan Joseph, an analyst at Nationsbanc Montgomery, has one of the more optimistic
viewpoints. Mr. Joseph said: "Every company we talked to, we find good news almost
everywhere. We have heard this since mid-June.
"We are virtually assured that June represented the bottom in the current downdraft for semis
and PCs. What's the reason for our optimism? We have talked to brokers and board makers
and PC makers. They are seeing a snap-back in PC sales. Investors are really looking to
rotate into the semi sector. Stocks could go up if there is consensus opinion." New record
highs for the NASDAQ in recent week seem to justify Mr. Joseph's position.
"We think that we are minimally into one of the strongest inventory rebuilds we have seen in
years. And it could be the start of a sustained upturn. It may well be more than just an
inventory build; it may be part of a sustained upturn," Mr. Joseph added.
Distributors had mixed views. Donald Bell, president and CEO of Bell Microproducts Inc.,
said there are signs that the second half of the year will pick up. Mr. Bell noted the industry
has normalized inventory levels, which were excessive. That, coupled with capacity
cutbacks, should stop the crippling erosion of average selling prices.
Those factors, he said, "should stabilize prices to the extent they can be stabilized in this
industry we're in."
And, stable prices going into the traditionally stronger buying season should yield positive
results, said Mr. Bell. By the second half of the year, next-generation product transitions have
been made and buying picks up. "I'm optimistic," Mr. Bell added.
On The Other Hand
Not all distributors share that view. "I don't think we can underestimate the impact the
Asia/Pacific crisis is having on the components side of the business," said Jim Jefferies, VP
of worldwide marketing, components at Pioneer-Standard Electronics Inc. "As a result of
what we see happening, I don't see any significant growth over the next few quarters." Mr.
Jefferies said while PC demand on the consumer side might pick up because of the
back-to-school and Christmas selling seasons, PC demand on the business side shows no
signs of pending demand.
Cowen's Mr. Peck said the clearing of inventory channels may be regional, noting that there
are strong signals coming from Taiwan: "There has been a pickup in demand in PC-related
components in Taiwan. It may just be the inventory replenishment but the stocks have been
held down so much that if investors are given any excuse at all they'll run right up and buy
anything technology-related.
"After six months of bad news the stocks have been pretty much wrung out...now for the first
time there seems to be a modicum of good news and they can't buy the stocks fast enough. The
question is, does the Taiwan phenomenon reflect improvement of end-user demand or
inventory replenishment. I suspect the latter; the only evidence we have is of the latter. But
from a stock perspective it doesn't matter. All you need is an excuse to buy it and they have
the good news from Taiwan."
Mr. Peck also noted that comments from Compaq suggesting that actual end-user consumption
of their product has jumped dramatically are driving stock sales. "It could be from a very low
base but nonetheless it means we have hit the bottom. Right now at the very least we know
there is inventory replenishment going on. We are still a ways away from knowing if there is
an improvement in end-user demand.
"Clearly what is exciting investors right now is a hope that the improvement in the PC
business in Taiwan becomes a full blown global phenomenon. We will know six weeks out if
what we are seeing in Taiwan is representative of a genuine pickup in the PC business. The
pickup there included disk drive and component demand which has jumped up nicely. I
believe it is just because they have depleted their inventories but in six weeks we'll know if
it is end user demand. Either way it helps the stocks" (see related story, page 50).
Others, however, such as Martin Goslar, PC Market senior analyst for Cahners In-Stat Group,
say they aren't convinced. Dr. Goslar said the ongoing Asia/Pacific financial crisis will
continue to have a strong impact.
Asia/Pacific: No Solutions
"The Asia-Pacific problems have no real solutions," Dr. Goslar asserted. "Japan has talked
about bridge banks and tax cuts but they haven't gotten that together. All the economic
indicators we see say that it is not going to be fixed soon."
Noting the change in leadership in Japan as Japanese Prime Minister Ryutaro Hashimoto
resigned last Monday after voters repudiated his Liberal Democratic Party's handling of the
economic crisis, Dr. Goslar said this change provides a slim ray of hope. He said the
successor "might carry out the changes they announced. The previous government dragged
their feet on the two fixes that could make a difference, a tax cut and bridge banks--where the
government would take over the banks on a temporary basis and people won't lose their
assets."
He added that "Europe is the bright spot. Companies are shifting their sales from the
Asia/Pacific market to Europe." Dr. Goslar said In-Stat is still looking for double-digit sales
for PCs this year, in the 12-15 percent range.
Dataquest analyst Kimball Brown said: "I think we are talking about an uptick in the purchase
of parts to make PCs. Compaq has slowed its purchasing dramatically since March when it
realized that it had way too much inventory. HP was caught soon after (April) and had to do
much of the same.
"IBM had its problems as well. This is a lot like 1995 when the market shifted over to
Pentium from 486. Compaq et al were all caught with way too much inventory and had to
clean out. This time it is the shift to Pentium II. Dell and Gateway don't hold inventory in
channels so they are affected very little. Starting in late June, it appears that Compaq etc.
starting buying parts again, allowing Intel not to have pre-announce a horrible quarter as they
sold a good number of chips right toward the end of the quarter."
What Could Derail It?
Dataquest's Mr. Brown is confident that the current recovery is sustainable but said that it
could still be derailed by technology saturation. "The second half should pick up as the
industry is finally over the Pentium to Pentium II inventory shift.
" Now, the big question going forward is whether the PC industry itself is tapped out. We
finally have plenty of performance at low prices to run (Microsoft) Office and the Internet.
The PC won't die, it just might slow down to single-digit growth going forward," Mr. Brown
said, adding, "By the way, I can't see how Win 98 has had any effect at all, good or bad."
Some are counting on higher education to soon spark a PC turnaround. The coming
back-to-school season should provide a lift to electronics sales at the retail level, which will
then be felt by OEMs and distributors, predicts Ben Schwartz, VP of strategic marketing at
distributor Jaco Electronics.
"Today, when somebody goes to college, he needs a PC, and maybe some entertainment gear.
We may see a very nice retail pickup in August and that transcends into a re-building of
inventory at makers of computers, entertainment and other products. August and September
could see some pick up in activities, then the Christmas period comes in. It may not be
anything dramatic, but I look to see some pick-up in activity starting around the second week
of August."
--Additional reporting for this story was
provided by Cynthia Bournellis, Heidi Elliott and Bernard Levine
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