Select PC manufacturers and chip producers are expected to report positive sales and earnings figures for the first quarter, despite a spate of problems that hampered the industry early in the year.
The optimism, which began to emerge in early March, comes from rising computer sales. Consumers PC sales, in terms of the number of units sold, are still growing. Corporate sales, meanwhile, began rolling again after a short January freeze.
"January was horrendous, but February picked up and March picked up some more," said Dan Niles, an analyst at Robertson Stephens. Overall, PC sales will be down sequentially from the last quarter, which is typical, but the decline will be "less than normal," he said.
"You didn't see the (semiconductor) business slow down like you normally do," said Joe Osha, chip analyst for Merrill Lynch, who added that the role of PCs in driving growth is shrinking. "A lot of the growth in this business is coming from information appliances, communications equipment, wireless."
As usual in the hardware industry, however, pricing and other competitive pressures will keep a lid on any excessive exuberance, and success will be unevenly distributed.
One of the major beneficiaries of purchasing appears to be processor manufacturer Advanced Micro Devices. The company today said that it expects to report record revenues in excess of $1 billion, or about 10 percent more than last quarter, a reversal of the seasonal trend when sales decline after the end of the year.
"We believe we continued to gain unit share worldwide last quarter in the PC processor segment," AMD chief executive W.J. "Jerry" Sanders said in a statement. Sales of flash memory, a key component in cell phones, also contributed to the surge.
AMD is expected to report earnings of 48 cents per share for the quarter, according to a consensus on First Call, although a number of analysts expect earning per share to come in higher. Last quarter, AMD reported earnings of 43 cents a share. Last year, AMD revealed a massive loss of 81 cents a share for the first quarter, caused primarily by a price war with Intel. AMD will report earnings on April 12, after the market closes.
Although a surge at AMD can be attributed to individual success in marketing its Athlon processor, the company won't likely be the only one on an upswing.
"We believe HP will be able to deliver 14 to 15 percent growth in (the second quarter), which is a strong positive side," Steve Milunovich, hardware analyst at Merrill Lynch, said in a note earlier this week. A substantial portion of the growth comes in the retail segment, he noted. Both IBM and Packard Bell dropped out of retail at the close of 1999. HP is also expected to report momentum in Unix server sales, but the picture is not yet clear, Milunovich said. HP's second fiscal quarter ends in April.
The demand picture will continue positive as the year goes on, according to analysts. "With the launch of Windows 2000 and continuing Internet upgrade pressures, we think that PC unit demand will be healthy for 2000, driving 15 to 20 percent revenue growth," wrote Morgan Stanley Dean Witter's Gillian Munson earlier this week.
Munson added that Gateway could surprise investors in the first quarter with better than expected revenues from non-PC businesses, such as its ISP service. Last quarter, Gateway was stung by a shortage of Intel processors. Some analysts remain skeptical that Gateway sales have fully rebounded yet.
Intel is also expected to deliver an upbeat earnings report because of a variety of factors. Growth in the number of products shipped will rise by 20 percent over the same period from the year before, but price declines of around 15 percent will neutralize a substantial portion of these gains, wrote Ashok Kumar, an analyst at US Bancorp Piper Jafffray. Gross margins nonetheless will increase, he predicted, because of lower chip packaging costs. "The primary positive trend for the company is cost declines ahead of ASP (average selling price) erosion," he wrote.
Company executives earlier this year said sales were down seasonally from the last quarter of the year, but not as much as usual.
The First Call consensus is that Intel will report earnings of 69 cents a share, 12 cents over earnings of 57 cents the year before and even with earnings last quarter. Intel will announce earnings on April 18.