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To: Dave B who wrote (18545)	4/12/1999 8:18:00 PM
From: MulhollandDrive	Read Replies (2) \| Respond to of 93625

Dave, More PC musings.... Analysts Ponder Implications Of Compaq's Warning On PC Industry April 12, 1999 1:54 PM NEW YORK -(Dow Jones)- Compaq Computer Corp.'s profit warning has a few analysts concerned about growth prospects for the personal computer industry. BancBoston Robertson Stephens's Daniel Niles said Monday that while he isn't concerned about unit growth in the industry, falling PC prices could stunt revenue growth. Niles projects PC revenue growth of 3% in 1999 - below his previous estimate of 6% but above last year's 2% pace. PC unit demand will be about flat with last year at about 12% to 13% growth, Niles said. Niles said PC revenue growth will be difficult through the fall because of the move to sub-$500 and free PCs in the consumer market, and the growing attraction of machines based on Intel Corp.'s low-end Celeron processors as an alternative to more-expensive Pentium II and Pentium III PCs in the corporate market. He also cited spending by large corporations to fix their so-called year 2000 computer glitches, as well as usual summer seasonality. The analyst believes the move to sub-$1000 machines in the consumer market last year could be followed by similar pricing declines in the corporate market this year. As a result, Niles believes average PC selling prices will fall another 8% in 1999, above his previous expectation of 6% but below last year's decline of 9%. On the positive side, Niles pointed out that channel inventories are low, the industry is seeing a recovery to double-digit unit growth in Asia from a 2% decline, small and medium-sized corporations are increasing year 2000 spending, and increasing broadband deployment could spur demand for more powerful PCs. Compaq (CPQ), which earlier this year said PC demand was weakening, warned after U.S. markets closed Friday that its profit would be 15 cents a share for the period, compared with the already lowered 32-cents-a-share mean estimate of analysts polled by First Call. The disclosure cast a shadow on other companies in the technology arena. "It's negative news for the whole tech sector," said Peter Coolidge, head trader at Brean Murray. "Anytime you get a surprise like this it's discomforting to the whole market." The news took Wall Street by surprise and has led some observers to wonder whether the problems that have hurt Compaq could be endemic to the industry. "Some people were coming to the conclusion that it's not just seasonal and it's not just specific to Compaq," said Bill Meehan, chief market strategist at Cantor Fitzgerald. However, Bob Herwick, president of Herwick Capital Management, said Compaq's problems are likely company specific. He notes that the company has been struggling to better compete with Dell Computer Corp.'s (DELL) direct-selling business. Still, he suggested that industry observers will have a better sense of the overall health of the industry after Intel Corp. (INTC) reports its quarterly results on Tuesday. Merrill Lynch & Co. analyst Steve Milunovich said issues expected to affect Compaq's first-quarter earnings are likely to continue into subsequent quarters. "This probably isn't just a one-quarter problem," he said. "There are some structural issues at Compaq." Milunovich expects Compaq will continue to grapple with its hybrid direct-indirect model. "So, I definitely think it's worse for Compaq than it will likely be for other PC makers," he said. The analyst also said he expects Compaq to enact further restructuring plans, as well added headcount reductions. Compaq Chief Executive Eckhard Pfeiffer on Monday said the company's profit shortfall was related to industry conditions, not internal problems. Copyright (c) 1999 Dow Jones & Company, Inc. All Rights Reserved.