Personal computer makers have been hit hard by slowing consumer demand and price wars that have pushed PC prices and revenue numbers lower at most of the top PC makers. To make things worse, analyst have said the usual back-to-school shopping rush isn't going to materialize; the PCs people have are good enough already.
According to an overview of the PC sector from Prudential Securities analyst Kimberly Alexy, things aren't getting any better. Multiple sources have "confirmed that second-quarter volumes will likely come in weaker than expected for several PC vendors," she wrote.
Gateway and Compaq both had their estimates cut by Alexy and other analysts Monday. Gateway shares fell 74 cents to $15.71, while Compaq slid 4 cents to $15.28.
Gateway, which will report its second-quarter earnings after the market closes on July 19, is currently predicted to report a loss of a penny a share on revenue of $1.94 billion.
But "continued weak demand coupled with a lack of operational excellence," means the company could miss those numbers, said Merrill Lynch analyst Steven Fortuna, who maintained his "neutral" rating on the stock Monday.
Fortuna said he expects the company to make a pre-announcement sometime in early July after the quarter has closed and the company has looked over its books. He predicts Gateway's second-quarter loss is more likely to be in the neighborhood of 4 cents a share, and sales are likely to be around $1.8 billion, making them down 10 percent for the year.
The analyst also lowered his estimates into 2002 Monday, citing longer-term issues that could affect the company's results. "Toward the latter part of the year and next year, we believe consumer demand will be driven more by price-sensitive first-time buyers than an XP-driven upgrade cycle," Fortuna said, referring to Microsoft's new Windows XP. Given this possibility, and the lack of any other new applications, a hardware upgrade cycle isn't likely to occur anytime in the next 12 to 15 months, Fortuna said.
Alexy also lowered her estimate for Gateway's upcoming quarter. A loss of 3 cents a share is likely, given "the acceleration in pricing pressures," Alexy wrote.
Compaq investors could also be in for some bad news in the second quarter, analysts warned. According to First Call's consensus estimate, the company is expected to report earnings of 4 cents a share on $8.78 billion in revenue.
But "with IT spending still soft in the U.S. and indications of deterioration in both Europe and Asia," Alexy wrote, "Compaq has set overly aggressive revenue and earnings guidance for the second quarter.
Alexy lowered her earnings estimate, which had been in line with First Call's, to breakeven per share, and said the company is more likely to report sales of around $8.56 billion.
On the bright side, Alexy noted, even a pre-announcement shouldn't affect the stock, since recent drops have already reflected her concerns.
Wit SoundView analyst Mark Specker also lowered his estimates, citing continued weakness in Europe and Asia-Pacific, the reason he also downgraded the stock in May.
As for other companies in the industry, rival PC maker Dell, which saw its shares up 60 cents to $26.75 Monday, "appears to be tracking to plan," for the next quarter, according to Alexy. Dell has recently stated its intention to step up competition with its fellow PC makers.
The industry overall is likely to remain weak, though, and Alexy also lowered estimates on Hewlett-Packard, Sun Microsystems and Network Appliance. "Revenue--though less likely earnings--estimates are at risk" for Apple and IBM, she added.