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SCI sees lower 1Q due to PC, set-top weakness

SCI Systems Inc. (NYSE: SCI) said Wednesday that its fiscal first quarter results will miss expectations due to weakness in consumer electronics and personal computer demand.

SCI, which makes set-top boxes, consumer electronics and PCs for major vendors, said September demand for consumer electronics and PCs was lower than expected. "We usually see seasonal softness and September is key to the quarter," said CEO Gene Sapp, on a conference call.

Shares of SCI dropped 13.94 to 42, almost 25 percent, in morning trading.

Sapp didn't name what PC customers were seeing weakness, but the company's largest customers in 1999 included Hewlett-Packard (NYSE: HWP), Dell (Nasdaq: DELL) and Compaq (Nasdaq: CPQ), according to regulatory filings.

Sapp said component shortages also led to long lead times and delayed the ramp of a number of new programs. The delays also affected set-top box sales, the company said. The combination of set-top box delays and soft PC demand dinged the quarter, he said.

The company's original expectations for the September quarter were for sales of $2.3 billion and for 38 cents of diluted earnings per share. It now sees sales of $2 billion for the quarter, and 34 cents in diluted EPS. First Call Corp. consensus projected a profit of 38 cents a share.

SCI is the latest contract equipment manufacturer to cast a pall over the PC sector. Solectron (NYSE:SLR) raised the specter of PC slowing demand. "PC demand is not quite as hot as one would expect this time of the year," said Solectron's CFO Susan Wang in a conference call discussing the company's fourth quarter results and fiscal 2001 outlook.

Solectron dropped 1.25 to 45 in morning trading. Other firms could also feel the bite. Flextronics (Nasdaq: FLEX) dipped 4.88 to 78, while shares of Jabil Corp. (NYSE: JBL) were halted.

Compaq dropped 1.56 to 29.94, and HP fell 3.25 to 107.75.

SCI said it stands by earlier guidance for the year of $10.5 billion in sales and between $1.70 and $1.74 in diluted EPS. For the second quarter of fiscal 2001, it expects sales of about $2.5 billion and 42 cents in diluted EPS.

Sapp stated that the company's business outlook for the rest of the year is strong, with excellent bookings this quarter and backlog at an all time high. A favorable shift in business mix will result in some operating margin improvement, the company added. SCI also said it plans to announce acquisitions, which it is pursuing both for OEM divestitures and for strategic purchases of companies and assets, before the calendar year's end.