BEAR, STEARNS & CO. INC.
EQUITY RESEARCH
Computer Week In Preview: May 31, 1999
Asian Optimism; That Time Of Year; Durability; Tech99 Update
*** Asian Optimism. Having just made a swing around Asia, we get a clear sense of optimism on a number of fronts in our conversations with people in business and finance circles. While the economies are still coming off the bottom, it is clear that the declines have stopped (for the most part), that business trends are picking up in terms of volume in a number of areas and that consumers are more optimistic. Moreover, Asia is investing in technology - there is a desire to keep up with the rest of the world. For example, the Internet fervor that we have seen in the U.S. and Europe is obvious around Asia.
There is a bigger picture here (which we have pointed out before), which we believe is healthier for investors, i.e., more balanced demand. While the U.S. has been the primary engine for IT demand over the past five years, we are now seeing a world in which all major regions are accretive to growth. As late as 1997, the U.S. accounted for 44% of global IT spending, compared with 25% of world GDP. In late 1997, we noted a surge in IT investment in Europe, which had been underinvesting for the prior five years. And Asia including Japan, which was generally in a decline mode for the past two years, has also turned the corner, providing another support for growth.
We'll have to monitor the current political tensions with China, since that market is a major source of growth and production for a number of companies. At this point, it appears to us that this tension will probably blow over, although these situations can prove surprising.
*** It's That Time Of Year Again. In light of recent trading action, we want to revisit our comments from three weeks ago (Computer WIP, 5/10/99) regarding tech stocks around this time of year because these corrections - in the absence of any substantive news to the contrary - should lead investors to think about what to buy and not what to sell. As we noted then, May and early June have historically been periods of weakness for tech stocks. There are multiple reasons that seem to cause the weakness - fears of seasonality, earnings pre-announcements, Y2K fears, etc. - but we think the primary issue is the lack of new information. From our perspective, we think it's important to note that the stocks generally bottom in late June or early July as investors begin to focus on the upturn in the second half. So our perspective remains the same: You probably want to pick your spots in anticipation of this move.
*** Durability. The Durable Goods report for Industrial Machinery orders (i.e., the category containing computers) rose 3.5% in April, according to the data released by the Commerce Department on May 27. This positive result follows a bounce in March after softness in January and February, according to the Bear Stearns Economics Group. While we will have to wait for the Factory Goods report on June 3 for confirmation, indications from our industry sources point to a continuation of the firm demand trend with which we exited the first quarter.
*** Tech99: Virtually Yours. We want to remind you to save the date for our "Virtual Computer Conference, which takes place on Monday, June 14. We also want to get you to start thinking about what questions you want answered.
· What is a virtual conference? It is a series of telephone conference calls supported by slides on the Internet. Our agenda consists of a one-hour panel of CIOs - Fedex, NASDAQ, Sprint Telecom, VF Corporation (12:00 noon ET), followed by four 45-minute keynotes: Michael Dell, CEO, Dell Computer (1:30 pm ET), Scott McNealy, CEO, Sun Microsystems (2:30 pm ET); Lew Platt, CEO, Hewlett-Packard (3:30 pm ET) and Mike Ruettgers, CEO, EMC Corporation (4:30 pm ET).
· Why do a virtual conference? For several reasons. First, we prefer to get the CEO's perspective, which is more achievable this way. Second, we find it is helpful to hear multiple perspectives serially as opposed to over the course of several days. Third, investors can participate regardless of where in the world they are. Fourth, and most important, we know that the Internet changes everything including conferences, so we want to figure out the best way to do a conference virtually.
· How do you get questions answered? While we expect to have some time for Q&A during the keynotes, please feel free to send us your questions in advance to aneff@bear.com.
· How can you get more details? You can get more details from your salesperson or on our website at bearstearns.com.
*** This report is a summary of some of the major company and industry events that could have an impact on computer stocks -- PCs, enterprise-wide systems, disk drives, and computer-related semiconductors -- over the next week and beyond -- along with our commentary. |
