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Cut prices or face inventory mess: Gartner tells US PC makers

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CIOL Bureau
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By Peter Henderson



SAN FRANCISCO: Hard-hit US computer makers must cut prices before the holidays to avoid huge inventory buildups, a research firm warned on Friday, just as Gateway Inc. announced a shift in its retail strategy. The announcement came as the benchmark index for computer hardware shares fell to its lowest level in 18 months and analysts warned of the risk of a spreading slowdown in corporate investment in information technology.



"January will be a bloodbath for anybody who hasn't managed to get their equipment through the channel," Gartner Dataquest analyst Martin Reynolds told Reuters. "Stuff that doesn't move before Christmas - especially the low-end equipment - will form a big overhang," he said, warning of a "huge mess".



Gateway, the number four US personal computer maker, said on Friday that it will sell computers straight from its showrooms through Christmas Eve, a change from its established practice of shipping PCs to buyers. "They've realized they've got to get this inventory out, so let's put it in the stores and roll it," Reynolds said.



Will businesses buy?


Reynolds said Dataquest was revising forecasts and might cut its US consumer PC growth outlook for 2001 to around 12 per cent from this year's 16 per cent forecast. Although consumer buying is likely to remain low key until the last quarter of 2001, business investment could pick up by the second quarter in part because of the upgrade cycle for Windows 2000, Reynolds said.



That optimism for business buying is based on the logic that in an economic slowdown, companies will still look for the savings from more investment productivity-enhancing computers. But Compaq Computer Corporation warned earlier this week that demand from small and medium businesses and "dot-coms" was weaker, raising the prospect that Internet firms could remain on the leading edge, this time in cutting back technology spending.



Fearing that corporate purchases could dry up, analysts on Friday downgraded EMC Corporation, which makes computer storage networks, network computer supplier Sun Microsystems Inc., and Hewlett-Packard. "EMC is clearly the best house in a growing neighborhood, but the fires in the neighboring community may spread," concluded Bear Stearns analyst Andy Neff, who cut the stock to "attractive" from "buy" on Friday.



He made a similar cut for network computer supplier Sun Microsystems Inc., citing a deteriorating economy and the risk that businesses would delay purchases. Goldman Sachs analyst Laura Conigliaro cut her earnings estimates for Hewlett-Packard, saying that softening PC sales had spread to the corporate market, and lowered her U.S. PC market forecasts for 2001 for consumers and corporations.



Shares of a number of major tech companies ended the session at or near lows for the year and the American Stock Exchange's computer hardware index closed down more than 4 per cent to 211.75, its lowest close since June 1999. The index is down 39 per cent in the current quarter.



(C) Reuters Limited 2000.

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