Personal computer makers might want to ratchet down their expectations if Wall Street forecasts are on target.
Total sales are set to grow 9% next year, down from a previous forecast of 11%, according to Morgan Stanley.
In a note, Morgan Stanley analyst Rebecca Runkle said consumer sales plus small and medium-sized business sales declined in the second half of this year. It would take a huge gain in the ultra high-end slice of the market for growth to be in the double digits, she said.
Other analysts also have taken swipes at the PC industry, which is known for cyclical sales.
Market tracker Gartner Inc. predicted that the PC landscape is ripe for more consolidation, with three of the top 10 computer makers leaving the market by 2007. IBM Corp. plans to sell a majority stake in its PC business to China’s Lenoro Group Ltd.
Meanwhile, Merrill Lynch & Co. analyst Steve Milunovich expects PC shipments to grow 9% next year, but less in 2006.
Will this be bad news for Irvine-based computer maker Gateway Inc.?
Runkle says Gateway could be a winner. The company is expanding its retail strategy under Chief Executive Wayne Inouye, former head of fast-growing eMachines Inc.
Gateway bought Irvine’s eMachines earlier this year, thanks in large part to Inouye, who is a former executive with electronics seller Best Buy Co.
Gateway has plans to reenter the Japanese PC market with two new laptop models. The company had pulled out of Japan in 2001 to concentrate on North America. It also is eyeing the Mexican market for its eMachines brand.
Gateway’s homespun brand with cow spots on boxes never has picked up abroad. Gateway likely will try to get a foothold in the low-price PC market.
Riding Western Digital
Take that, hard drive skeptics.
Western Digital Corp. hasn’t wasted time letting investors know how good its December quarter is turning out to be.
The disk drive maker recently noted that sales in the quarter ending Dec. 31 would be at least $885 million,6% higher than a prior forecast. That was welcome news for the industry.
“We believe 2005 is beginning to look like a year in which all drive companies, and Western Digital in particular, could begin to show improved operating leverage over 2004,” brokerage Charles Schwab Corp. said in a research report. “Our thesis is based on a pricing environment, which continues to improve, and a demand environment, which remains strong.”
Western Digital recently launched its bid for foray into the market for laptop computer drives. The company made mobile drives in the early 1990s but exited the market by 1997 amid competition from IBM and Toshiba Corp., which produced drives for their own portable computers.
But given the mediocre outlook for PCs, it seems there could be something more at work,like non-traditional hard drive markets such as set-top boxes taking off.
That’s something seen by Matt Massengill, Western Digital’s chief executive.
“They buy lots of big disk drives,” Massengill said in an earlier interview. “Like the TiVo, 80 gigabytes only gives you nine hours of recording. So we’re talking very high capacity drives. And we’re seeing them in things like the navigation systems for cars to security camera recording.”
No Upside?
Standard & Poor’s equity research unit knocked Aliso Viejo-based QLogic Corp. recently.
QLogic shares were downgraded to “hold” from “buy,” with S & P; saying they were fully valued.
But the outlook wasn’t all bad.
“We view the company’s industry position within fibre-channel host bus adapter market as favorable,” S & P; said in a report. “In addition, QLogic possesses an attractive capital structure, in our view, with a double-digit current ratio and no long-term debt.”
One thing to watch is pricing.
“The company’s profitability may be hindered over the near term on more aggressive pricing by competitors and a less-favorable business mix.
As a result, we see further upside potential as limited,” S & P; said.
S & P;’s 12-month target price is $35, with shares trading last week at $38.
S & P; isn’t alone in its opinion on QLogic. Merrill Lynch analyst Shebly Seyrafi downgraded QLogic to “neutral” from “buy” in October. He cited valuation concerns.
In the quarter ended Sept. 26, QLogic posted a 1% decline in operating profit to $50.9 million, versus a year earlier. The company posted a slim revenue gain of 2% to $134.6 million.
Other Q News
QLogic and Denver-based McData Corp. recently said they had plans to make a special switch for large companies that can be integrated into McData machines.
While the two companies are competitors, the partnership is aimed at easing the use of blade servers, a special server that has more efficient storage and power capabilities than normal servers. The partnership will make it easier for customers,and ultimately better for QLogic.
“Customers want to be able not only to install these blade servers seamlessly into their existing fabrics, but they want to be have the same management capabilities they have had in standalone hosts in the past,” Rick Villars, vice president of storage systems research at market tracker International Data Corp., told eWeek.
