At the end of May, thoughts move ahead to summer. Beaches. Barbecues. Bottles of cold beer. Maybe an island vacation.
But if you’re chief executive of a company that makes personal computers,think Wayne Inouye of Irvine-based Gateway Inc.,you’re looking ahead at what could be a slowing sales season.
In fact, it seems that demand for computers already has slowed,at least according to Merrill Lynch & Co., which said April PC demand slowed from the previous month.
It should be said that total PC demand still is expected to grow this year. Shipments of PCs could grow by 9% this year, thanks in large part to laptop computer sales, according to market researcher Gartner Inc.
The 9% is lower than 2004’s 11.6% PC shipment growth rate.
If PC sales growth is slowing, Gateway isn’t sweating too much. Gateway, the No. 3 personal computer maker in the U.S., posted a narrower net loss in the first quarter on strong sales of notebook PCs.
On the downside, Gateway’s revenue fell 3.5% to $838 million in the quarter, though much of the decline can be attributed to the company’s planned closure of some 188 stores.
Gateway’s current incarnation looks a lot like what eMachines,the discount computer maker Gateway bought last year,used to look like.
Inouye,then chief executive of eMachines,was a major engineer of the deal, and took over as chief executive from Gateway founder Ted Waitt. (Two weeks ago Waitt said he was retiring as chairman of the company. Richard Snyder, a director and former Gateway president, is set to take over.)
Inouye brought his eMachines formula to Gateway. Take distribution. EMachines sold to home computer buyers through stores.
Within weeks of becoming chief executive, Inouye said he was shuttering all of Gateway’s stores. The ensuing layoffs would reduce the company’s headcount from 7,600 people to fewer than 2,000.
Inouye stopped selling Gateway-branded televisions and other consumer electronics to focus on computers. Today, most of Gateway’s sales come from the Internet and stores such as Best Buy.
Inouye recently told eWeek magazine that Gateway’s costs have declined 70% from a year ago. In all, Gateway reported a net loss of $5 million in the first quarter, compared to a net loss of $172 million in the same quarter a year ago.
The company’s progress has been decent. But in PCs,as with anything in tech,it’s a dog-eat-dog world. Gateway is going up against Dell Inc. and Hewlett-Packard Co. And a new rival looms with IBM Corp.’s sale of its personal computer business to China’s Lenovo Group Ltd.
The company’s operating loss was $7.8 million in the first quarter.
Zinging the Q
I didn’t think I’d live to see the day when tech storage device maker Aliso Viejo-based QLogic Corp., a onetime high-flier, would hit a rough patch.
But a recent Motley Fool analysis I read confirmed something I’d written here a few weeks ago.
Motley Fool writes that while the Q looks good on paper,the company reported sales of $157 million in the quarter ended April 3, up 23% from a year earlier with net income rising 40% to $46 million,there are problems.
“Well, do you remember the disk-drive market? Or the TV market? Or the radio market?” Motley Fool asked. “Every one of these markets had boom times and high-quality companies, only to hit hard times when growth slowed down, products became increasingly commoditized, and growth and profitability became scarce.”
The article notes that while EMC Corp. and Network Appliance Inc.,both Q customers,seem to be growing, they might be doing it by squeezing suppliers like Q itself.
That’s an odd place for Q, which long has been considered a marquee company,even over rival and former parent Emulex Corp.
Since splitting off from Emulex in the early 1990s, Q has been considered the frontrunner in terms of growth potential and market value.
At recent check, Q had a market value of $3 billion, with Emulex at about half that amount. Still, Emulex has plenty of momentum. It’s very close to its 52-week stock high while Q is 26% off its high in the past year.
Some analysts are leaning toward Em-ulex.
J.P. Morgan analyst Mark Moskowitz recently cut his earnings projection for Q’s current quarter, saying the company was projecting growth that was slower than that of Emulex.
“We believe that Emulex remains on a clearer path to growth versus QLogic,” he said in a research note. Meanwhile, Emulex scored a string of upgrades from analysts.
But according to Motley Fool, even Emulex isn’t a prizewinner.
“Investors have begun to believe that providers of the essential backbone of storage area network products,whether QLogic or rival Emulex,” the article said, “are companies with a great future in their past.”
