Don’t Drag PC Craze Into the Trash Just Yet

Is the personal computer craze over? Many on Wall Street seem to think so.

When Digital Equipment Corp. last week warned of flat third-quarter PC sales, investors acted decisively: Not only did Digital’s stock price plummet, but so did those of a whole slew of others in the PC business.

If Digital’s grim news had been the only signal that the PC boom was over, then investors could be fairly accused of having overreacted again. But there’s been good reason for worry: Even Wall Street darling Compaq Computer, generally a well-oiled machine, said it over-forecast demand.

Both Digital and Compaq blamed corporate buyers, who have either stalled or canceled orders altogether. PC makers have known for a long time that the corporate market is largely one of replacing older PCs with newer, whizzier models, and so they’ve turned their sights to home buyers.

But now it looks as though they will be unable to count on consumers to make up for sluggish corporate sales. San Jose market researcher Dataquest predicts growth for the home PC market will slow to single digits, compared with a blistering 42% in 1994 and about half that last year.

But some market watchers say the problems are short-term and may offer technology investors some bargains.

“The question is when to buy these stocks,” says Roger McNamee, principal of Integral Partners, a money management firm in Menlo Park, Calif. “At some point during this adjustment, the prices are going to bottom out.”

Timing is tricky. The stocks could tumble further if investors are surprised by new bits of bad news. Even McNamee hasn’t decided when to make his move.

As always, the savior for hardware is new software. John Rohal, research director at San Francisco-based Robertson Stephens & Co., said a new version of Windows NT--the Microsoft software that runs on powerful servers--will be popular with corporate buyers who want to seamlessly link their computers into networks.

Both Windows NT and Windows 95 need a lot of hardware if they are to run well--and optimists say that will mean brisker corporate sales by the fourth quarter.

Also, Rohal says, the inventory glut will translate into great deals for consumers, spurring sales. Cheap Internet access from AT&T;, MCI and others should also boost PC purchases. Smart consumers will scour their newspapers for hidden bargains--both in the stock pages and the computer store ads.