Personal computer sales up but companies not buying

Caroline Humer

NEW YORK: Personal computer sales, long a laggard in the technology sector,

came back to life in December as holiday shoppers took advantage of low prices,

but sales to businesses failed to reappear, Merrill Lynch analyst Steven Fortuna

said on Friday.

"The December quarter showed some upside surprise on the consumer side,

however the more important corporate side remained weak and really failed to

show any signs of improvement," Fortuna said during a conference call.

"We believe corporate will remain weak for the first half of '02," he

added.

Fortuna said fourth quarter worldwide unit sales for personal computers rose

about 8 percent from the third quarter but are expected to suffer a sequential

fall of 8 percent to 9 percent in the first quarter. PC sales are typically

strongest in the fourth quarter because of the holiday season.

Given the stronger consumer sales, Fortuna said that Dell Computer Corp.,

Gateway Inc. and Compaq Computer Corp. could post better than expected revenue

for the fourth quarter. Compaq and Gateway may have had better per-share results

than anticipated, he said.

According to research group Thomson Financial/First Call, analysts see Dell

posting earnings of 16 cents per share on revenue of $7.6 billion. Compaq is

seen losing 3 cents per share on revenue of $7.6 billion. Gateway is expected to

lose 1 cent per share on revenue of $1.4 billion.

Several PC companies said that they had strong sales during the Thanksgiving

weekend. But a stronger fourth quarter isn't a given. In 2001, fourth quarter

demand failed to materialize, pushing the PC industry into a slump that worsened

as Dell pushed an aggressive price war on less nimble competitors, bumping

Compaq for the No. 1 PC maker spot.

Analysts, including Bear Stearns analyst Andrew Neff, said that sales dropped

off the weak after Thanksgiving but have since recovered. Neff said sales picked

up during the two weeks leading into Dec. 25 and, given low expectations for the

quarter, were better than expected. He's less positive about the first half of

2002, typically the slowest quarters for PC sales.

One of the biggest issues for 2002 is demand for enterprise computing,

including PC demand, Neff wrote on Friday in a research note. The industry needs

more than just one important new application, or "killer app", to

increase demand, he said.

"The key issue is whether there are multiple drivers for demand -- the

industry is too large to depend on one 'killer app' -- as we need to see several

factors moving in tandem, the largest of which is the global economy," he

wrote.

Wall Street analysts who cover microprocessor maker Intel Corp., such as JP

Morgan, have also said in recent days that demand from PC makers, including for

Intel's Pentium 4 microprocessor, was strong in the fourth quarter. Speculation

about the timing of a recovery has pushed semiconductor stocks, and some PC

stocks, higher this week. Since Dec. 31, Dell shares have gained 9 percent on

Nasdaq and were up 2 percent on Friday at $29.76.

Compaq shares, up 14 percent since Monday on the New York Stock Exchange,

gained 2 percent to $11.20 on Friday. Gateway shares are up 17 percent since

Monday and were up 2 percent at $9.43 per share, also on the New York Stock

Exchange.

(C) Reuters Limited.