Technology analysts at Merrill Lynch expect third-quarter worldwide PC unit growth to come in at 20% (21.7 million), which should also be the year-long figure if Q4 projections of 23% growth hold up. Merrill believes that only some vendors are well- positioned to capitalize on this growth, which has averaged 24% over the past five […]
Technology analysts at Merrill Lynch expect third-quarter worldwide PC unit growth to come in at 20% (21.7 million), which should also be the year-long figure if Q4 projections of 23% growth hold up. Merrill believes that only some vendors are well- positioned to capitalize on this growth, which has averaged 24% over the past five years. Competitive pricing is fueling demand for desktops and servers (the notebook market is being viewed as somewhat light this quarter), as well as revamped product lines, and Merrill recommends both Compaq Computer Corp and Dell Computer Corp as the only two who will capitalize on the current market landscape. At Compaq, the new build-to-order plan is in full swing and the merger with Tandem has gone smoothly. Merrill expects $0.70 per share for the quarter with a possible upside surprise. For Dell, business showed solid acceleration throughout the quarter and the estimate stands at $0.63 per share. Dell and Hewlett-Packard Co are both expected to vault over third-place Packard Bell NEC Inc and nestle behind Compaq and IBM Corp in the Q3 shipments race. IBM, in a period of product transition in its server line and facing weak sales of the RS6000, isn’t all that attractive to analysts right now. Big Blue is also expected to take a hit in the currency department to the tune of 5% off the top line and possibly as much as $0.10 to $0.15 in earnings. Thus, Merrill is expecting $1.38, minus the currency hit. Sun Microsystems Inc is feared to have taken a blow toward the end of the quarter due to weak Japanese sales, and is now projected at $0.41 per share, $0.03 below the industry consensus. In the world of semiconductors, Merrill sees an oversupply, weak prices and OEM’s that aren’t looking to build up inventory. Intel Corp faces these pressures in addition to its shift toward the Pentium II at a time when low-end PCs ($1,000-$1,500) are becoming increasingly popular. Thus Intel’s product mix is moving toward the low-end which will have a negative drag on profit margins. It’s estimated that Intel entered Q3 with about 5 million non-MMX Pentiums on its hands which it offloaded very cheap, possibly to Compaq. Merrill holds its estimate at $0.92 with a very real possibility of a shortfall. Advanced Micro Devices Inc, has had documented production problems with its AMD-K6 processor and expects an operating loss. Micron Technology Inc has fallen victim to soft demand and low prices for DRAMs, prompting Merrill to expect poor earnings from the company for the next six months. On a lone software note, Merrill seems to be comfortable with Microsoft estimates at $0.70, in spite of Tuesday’s revelation about the true cost of the WebTV acquisition.