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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: jim kelley who wrote (50920)	3/2/1999 6:13:00 AM
From: rupert1	Read Replies (2) \| Respond to of 97611

The following article, borrowed from the Yahoo Club Thread, puts the seasonality of PC sale into perspective, points out that CPQ and IBM rely on less than 50% of revenues from PC's (as opposed to 85% of Intel's market) and recommends that CPQ be "accumulated". forbes.com _________________________________________________ March 01, 1999 Is PC weakness seasonal? By Om Malik NEW YORK. 12:00PM EST—By the look of things, it seems the world of technology is coming to an end. The technology-heavy Nasdaq Composite Index is down almost 2% to 2268.80. In just the past week, the Nasdaq has dropped more than 100 points. Intel Corp. (nasd: INTC) is down $5 to $114 and is leading a decline in the personal computer stocks. Why such an apocalyptic reaction? Blame it on PC sales, some analysts believe. First Dell Computer (nasd: DELL) reported weaker than expected revenues; then Hewlett-Packard (nyse: HWP) made noises about poor visibility for PC sales; and finally Compaq Computer (nyse: CPQ) told Wall Street that it had weaker than expected sales in January. Add all this up and you have a "slow PC sales" scenario. Before you know it, the PC related stocks are taking a pounding. The sudden drop in stocks such as Intel Corp. (nasd: INTC), Gateway (nyse: GTW) and Micron Technology (nyse: MU) is something most investors should not be surprised with. Every year, almost like clockwork, news of weaker first-quarter sales is reported, fears of a PC slowdown are fanned and the technology stocks begin to drop. In a commodity world this is called seasonality. As anyone knows, you cannot sell Christmas trees in January. BancBoston Robertson Stephens' hardware analyst Daniel Niles agrees with the seasonality theory and he all but told his clients not to worry this morning. Brown Brothers Harriman technology analyst William Milton sends a word of caution. "PC sales rarely trail a smooth curve throughout the year and I think at this point there is very little visibility going forward," he adds. The problem is that January PC sales were weaker than what had been forecasted, analysts say. Now didn't we have a blowout December 1998 and fourth quarter 1998? The worldwide personal computer shipments shot up 15% in the fourth quarter, surpassing analyst projections as Dell, Compaq, and Gateway had strong showings. The fourth quarter also outperformed the year as a whole which posted an increase of 12%, according to International Data Corporation (IDC), a market research firm based in Framingham, Mass. For the full year, worldwide PC factory shipments totaled 90 million, with Compaq accounting for 13.2 million of the PC units, according to IDC. It was a big fourth quarter, with 27 million units shipped worldwide. Now IDC is forecasting a 13% increase in 1999 PC sales--or 117 million units. "The technology stocks before the current sell-off were fully valued and had factored in the fact that there will be only good news coming for these stocks," says CB Lee, semiconductor analyst at Sutro & Co., a San Francisco-based brokerage firm. Any signs of weakness, and people want to take the money off the table, he says. "The traders are thinking, well lets take some profits and enter at a lower price just in case, but this is not something to hit the panic button," Lee adds. Brown Brothers' Milton thinks that the sell-off in stocks like IBM (nyse: IBM) and Compaq is overdone, because both these companies get less than 50% of their sales from the PC business, unlike Intel, which gets 85% of its revenues from the PC market. He thinks savvy investors should start nibbling at these two companies. A word of caution: one needs to watch the reported slowdown in European spending on technology. In the past 12 months, European technology buying has been responsible for good results at many of the U.S. PC makers. Any signs of extended weakness in Europe could pose new headaches for the U.S. companies.