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Has PC growth hit a wall?

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CIOL Bureau
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Eric Auchard

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NEW YORK: Financial warnings by stylish computer maker Apple Inc. and chip

powerhouse Intel Corp. have stoked fears that personal computer demand is

slowing, even as the industry enters its busiest season.

While no one piece of data is conclusive, and some bright spots remain, the

growing number and scale of setbacks is creating a momentum of its own that

threatens to spark further dislocations in the closely intertwined industries.

On Thursday, Apple issued a sweeping warning, saying business had slowed on

all fronts. The warning followed the one by Intel, which makes the computer

chips used by most of Apple's rivals. Intel warned a week ago that it was seeing

slack European sales.

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More bad news has come from printer maker Lexmark, with trouble in Europe and

its consumer businesses, and SCI Systems, one of the world's leading contract

manufacturers, which warned of weak PC and consumer electronics businesses.

On Friday, Bear Stearns’ top technology analyst Andy Neff departed from his

normally upbeat stance and cut his rating on all the sector's top names: not

just Apple, but Compaq, Hewlett-Packard, Gateway and Dell.

"We want to wait for the evidence pointing to stronger demand trends

and/or compelling valuations in order to revisit our rating," Neff advised

clients in a research note.

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Morgan Stanley's PC analyst raised similar concerns about the macro-economic

environment's threat to PC demand.

Investors grow gun-shy, fearing new signs of PC weakness



Computer stocks took it on the chin on Friday after Apple's warning that sales
of educational and consumer products had hit a wall, leading its results for the

September quarter, normally Apple's strongest, to fall far short of investor

expectations.

Apple stock lost more than 52 per cent of its value to trade at $25.75, as

nearly $10 billion in shareholder value vanished, leaving the company with a

market capitalization of about $9 billion. More than 100 millions shares traded

hands.

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Caught in Apple's wake was Gateway, another PC maker whose business heavily

depends on consumer demand. Its shares tumbled 16 per cent to $46.75. The drop

came amid reports that Apple was looking to open several Apple-branded stores,

seeking to steal a page from Gateway's successful retail strategy.

Intel lost $2-7/8, or 6.5 per cent, to $41.56. Dell lost $2.625 to trade at

$30.81, down nearly 8 per cent, a new year low. Microsoft touched year-lows

before inching up to trade at $60.25, down $1.06. All trade on the Nasdaq.

Compaq lost $3.09 to $27.58. Micron, the leading US maker of computer memory chips, lost 9.4 per cent to trade at $46, down $4.75, as PC industry woes made the chances of any rebound in world memory product prices less likely. Both trade on the New York Stock Exchange.

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Still, many Wall Street analysts were quick to jump to the defence of PC

makers such as Compaq, Gateway and Hewlett-Packard, saying the latest troubles

were Apple-specific and not industry-wide.

Market researcher International Data Corp. forecasts that overall PC

shipments will grow about 17 per cent this year, bolstered by a 19 per cent

growth in the fourth quarter, when traditional holiday-season buying and

expected increases in demand for Microsoft-based business PCs should lift sales.

Continued...

PC makers firm on guidance, but investors losing patience



Several PC makers recently reaffirmed that their outlooks for the current
quarter remain intact. But investors are impatient and many trimmed their

holdings in PC-related stocks as the quarter drew to a close and ahead of next

months' earnings reports.

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A Gateway spokeswoman declined to comment Friday on financial results for its

third quarter ending this week, saying the company has been in a "quiet

period" since Sept. 15. On Sept. 22, Gateway said it was comfortable it

could meet Wall Street's consensus earnings estimate as of Sept. 15.

Investors remain in suspense about the last two weeks of the quarter,

typically the strongest part of the quarter for back-to-school and government

fiscal year-end sales in the United States.

Compaq chairman Michael Capellas declined to comment on third-quarter results

in an interview with Reuters late on Thursday. Round Rock, Texas-based Dell

holds a bi-annual analyst briefing late next week, which could provide

indications on how it is faring in its quarter ending in late October.

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Hewlett's chairman Carly Fiorina said on Wednesday her company's quarter

remained "on track." A spokeswoman did not immediately return calls

seeking further comment.

Some analysts argued that Apple is a market unto itself.

"Apple's miss really points to one of two things," said PaineWebber

analyst Don Young. "One, Apple's comeback is over. Or, two, there was a

worldwide softening in consumer PC demand in September for all PC vendors,"

he said. "We are casting our vote that this problem is unique to

Apple," he said.

The big problem is that data remains sketchy about PC sales for the month of

September, Young said, although Gateway has reported continued success in its

retail store outlets based on recent sales data.

Salomon Smith Barney analyst Richard Gardner said that potential explanations

for Apple's worldwide sales slowdown could include a fall in the US and European

consumer spending accelerated by higher oil prices and interest rates, issues

likely to drag down rival PC makers as well.

He also suggested that aggressive pricing by Apple's competitors had

undermined demand for its new high-priced products, which have met with rave

reviews, but lower than expected sales.

(C) Reuters Limited 2000.

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