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Analysts bullish on PC market

Despite Gateway's announcement yesterday of a third-quarter shortfall, analysts project a healthy road ahead for the PC market overall.

    Even as analysts adjust their expectations downward for Gateway 2000 (GTW), analysts project the overall PC market will remain healthy.

    According to Daniel Niles, an analyst with Robertson, Stephens, a strong rebound in the PC industry will fuel a 5 percent increase in revenues for Intel (INTC). Consequently, Niles raised his earnings-per-share estimate on Intel from $3.95 to $4.05 for 1997 and from $4.55 to $4.65 for 1998. (Intel is an investor in CNET: The Computer Network.)

    The news follows Gateway's announcement yesterday that its third-quarter revenue will not meet analysts' expectations. Increasing competition and difficulty breaking into new markets--rather than a slowdown in the market at large--is responsible, said three analysts.

    "Gateway is having more difficulty getting into corporate accounts than they anticipated," said Sarah Bernstein, an analyst at Kaufman Brothers. "I don't think Gateway's problems are an indication of the overall health of the PC market."

    Bernstein's remarks jibe with those of another analyst, who estimates that only 50 percent of Gateway's sales come from the corporate sector. That compares with more than 85 percent from companies such as Dell Computer (DELL) and Compaq Computer (CPQ), said Jeff Baker, an analyst with Principal Research.

    "At the corporate level, demand is very strong," Baker said, adding that sales of Windows NT servers and other platforms favored by corporations spell a robust future for Intel.

    But as the market for PCs continues to grow, so does competition among vendors. IBM, Hewlett Packard, and Compaq have all announced plans to break into the direct-sales market, a move that may shake up the PC market.

    "We've seen some of the major guys increasingly get in each others' way," said James Poyner, an analyst at Oppenheimer & Co. "It's becoming increasingly difficult for all these guys to [increase market share] simultaneously."