Evaporating PC Inventories Spur Rebound Hopes
Driven by improved sales and reduced inventories in the PC industry, a number of high-tech markets appear to be pulling out of their recent doldrums.
Led by Intel Corp., Oracle Corp., Cisco Systems, Texas Instruments and Dell Computer, among others, a range of tech stocks rose sharply Friday.
Shares in Intel, based in Santa Clara, Calif., gained $5.88 to close at $84.94 on Nasdaq, while rival Advanced Micro Devices rose $1.06--nearly 7%--to $17.25 on the New York Stock Exchange.
Texas Instruments, another bellwether chip maker, rose $2.19 to close at $52.81 on the NYSE. Dell, a top PC maker based in Round Rock, Texas, jumped $2.69 to close at $57.44 on Nasdaq.
Analysts attributed the rise to improved projections for second-half PC sales and upward revisions in previously discouraging revenue and earnings forecasts for several key companies. But most important was a vast reduction in unsold inventory at retail stores. The North American and European markets, analysts agree, are beginning to overcome the ongoing weakness in Asia.
“[PC] inventories are going way down in the retail channel,” said Matt Sargent, an analyst with ZD Market Intelligence in San Diego. He predicts 16% unit sales growth in the PC market in the second half of the year, based on interviews with computer stores, businesses and consumers. That’s a big improvement over the first half, though still lower than last year’s figures.
International Data Corp., a Framingham, Mass., analysis firm, predicts only 12.2% growth--but that’s also well ahead of figures from earlier this year.
For the last year, a bear market in the tech sector has been partially hidden “due to the performance of a handful of big names,” such as Microsoft Corp., Cisco and WorldCom, said Michael Murphy, editor of the California Technology Stock Letter in Half Moon Bay, Calif.
Some of those big names finally cracked under recent market strains and their stocks dropped. But Murphy sees today’s upturn as a sign of much better tidings for the second half of the year, as unsold PCs that clogged the retail channel have finally been cleared.
“Normally, you wouldn’t get the pickup until the December quarter,” Murphy said. But the midyear release of Microsoft’s Windows 98 operating system spurred sales that eventually brought down inventories.
“Everybody was caught by surprise,” he added, including the makers of disk drives, circuit boards and other PC components, who are now seeing an uptick in orders.
Because PCs account for about 45% of all chip sales, Murphy said, the PC rebound should also have a positive effect on a range of semiconductor companies that serve the PC market--not just the central brains of computers built by Intel and AMD.
Some semiconductor categories, such as memory chips, are still suffering. But Murphy expects all segments of the industry to gradually benefit from the ongoing replacement of obsolete computers in American businesses. The pressure of the Internet is finally pushing companies to replace old machines, he added, just as it fuels growth in the sub-$1,000 market for home users.
Todd Bakar, an industry analyst with investment bank Hambrecht & Quist in San Francisco, expects stock market volatility to continue but said that as a whole, the tech sector should have a healthy second half.
