<I'll send you my Furby for Christmas. Although by then, you'll probably want my Star Wars poster...>
And you call me a geek. <g>
The market was rather nervous today. Is all well in PC land? Is money shifting into other sectors such as those downtrodden commodities?
Is it an illusion that Dell looks cheap at $35? From a charting standpoint, it looks like it's an important price support.
"Paying the Pfeiffer", do we place the blame on one man? Do we let out a big sigh of relief and say now the problem is solved? Will it take years for Compaq to recover and will they damage the market as they go through rehabilitation? Will he return like Steve Jobs, riding a white pony and showing the world he was wrongfully scorned?
Or, are we on the brink of financial disaster? Certainly, you aren't feeling too rich if the best you can offer me is last Christmas'worn out toy and anyway what's the point of one Furby? I was rather hoping you'd send me an autographed copy of your latest book.
Regards, Mark
From Electronic News--April 19, 1999
Don't Count on the PC Biz
Intel results point to PC weakness
By Carol Haber
New York--Semiconductor makers counting on the personal computer to propel them to prosperity this year might be rethinking their strategy in the wake of last week's financial reports from Intel Corp. and others.
Intel's sales hit $7.1 billion in the first quarter, a sizable gain from the $6 billion reported for the same quarter a year earlier, but a 6.7 percent drop from the fourth quarter of 1998. Unit sales also declined. That rattled financial analysts, who had been expecting $200 million more in revenue from the microprocessor giant in the first quarter.
The stock market, which had been uneasy all week following Compaq Computer Corp.'s surprise announcement of an earnings shortfall, spasmed after Intel's news. The Nasdaq composite plunged 76 points on Wednesday, or nearly 3 percent, with technology stocks being hammered. That index regained 14 points on Thursday.
Although Intel attributed the sequential declines to "seasonality", financial analysts took issue. "The record doesn't support that," noted William Milton of Brown Brothers Harriman, New York. "Intel says it's a normal seasonal decline (in revenues) and therefore Compaq's shortfall was company-specific. My conclusion is just the opposite."
"If this is seasonal, it's certainly on the higher side of seasonal," said Scott Randall of SoundView Associates, Stamford, Conn., looking at the combined revenues reports of Intel and Advanced Micro Devices, which also reported its earnings last week.
"The extent to which revenues fell says that business is anything but usual,” stated Drew Peck of SG Cowen & Co., Boston.
Intel's track record going from the fourth quarter into the first differs from the latest result, said Milton of Brown Brothers Harriman. “I can tell you that if you take the simple arithmetic average for 10 years, it is up 4.6 percent. That's the average revenue increase for the fourth quarter going into the first quarter for Intel. So it's normal for it to increase, not decrease.”
The single year that showed a decline was the first quarter of 1998, down 7.8 percent, when there was excess PC inventory in the distribution channel. “It's very close this year. I think it indicates that the PC industry is weaker than normal.”
Cowen's Peck agreed: “Clearly the issue Intel is facing is this frightening erosion of prices. This year's transition to the first quarter seems equally as painful as last year's. The transition to the second quarter seems to be mirroring the weakness of a year ago. It's difficult to chalk it up to seasonality since Intel has not been consistent in the past in that respect.”
Intel said seasonal effects will also be a major factor in the second quarter's prediction of “flat to slightly down revenues.”
Intel MPU rival AMD last week reported a loss and sequentially declining revenues, triggered by price wars and its much-publicized manufacturing glitches. AMD revenues fell 20 percent from the just-prior quarter. In recent months, National Semiconductor, the third largest MPU supplier, reported a loss.
If all is not well on the PC front, that means trouble for the major chip companies that have grown dependent on that market. At Robertson Stephens, analyst Daniel Niles has cut his projection of PC revenue growth to 3 percent in 1999, below a previous forecast of 6 percent, and slightly above last year's 2 percent growth. Unit demand should grow 12 to 13 percent, about flat with last year, Niles contends.
The PC industry had been counting on stronger commercial business to offset the pricing free fall in the consumer arena. But price pressures have surfaced in the corporate world too as companies look to curb costs. Prices are expected to continue to fall, perhaps as much as 8 percent in 1999, according to some reports. Compaq pointed to “increased competitive pricing in the commercial PC sector” as a major reason for its disappointing first quarter.
Bolstered by strict cost control, Intel last week reported better than expected earnings of $2 billion, or 57 cents per diluted share, up 57 percent from $1.27 billion, or 36 cents a share, in the same quarter of 1998. Revenues rose 18 percent to $7.1 billion from $6 billion. They declined 6.7 percent from the fourth quarter. Unit shipments declined. But the company took back a few percentage point of market share from AMD.
For the quarter ended March 28, AMD reported a loss of $128.4 million compared with a loss of $62.7 million in the same quarter a year ago. Revenues rose 17 percent to $631.6 million from $540.9 million. They declined 20 percent from the just-prior fourth quarter.
Not all the news was downbeat from the personal computer industry. Apple Computer reported much better than expected results for the quarter (see story, page 36) “One of Apple's weaknesses has suddenly become sort of a strength,” said one industry observer. “They don't have a lot of exposure to the large corporate accounts, and that's where PC makers are having trouble.”
Motorola, with its emphasis on the cell phone market, reported first quarter profit rose 20 percent, driven by cost cuts and better sales of new mobile phones and semiconductors.
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