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PC makers expect Q1 bonanza

PC makers expect to report unusually strong Q1 results, bolstered in part by the popularity of the MMX processor.

PC makers in the coming weeks are expected to report unusually strong March quarter results, bolstered by the popularity of the MMX chip, strong international consumer sales, and cheaper component parts, analysts said.

Computer makers Compaq (CPQ) and direct-mail order company Gateway 2000 (GATE) are among six computer companies expected to be on track with strong quarter and year-end results.

The range of growth is huge. Compaq's continuing stronghold on the market is expected to increase 54.1 percent in the March quarter over a year ago, while IBM (IBM) is expected to have a modest rate of 4.5 percent in the quarter over a year earlier.

Two companies may be the exception. AST Research (ASTA) has been hemorrhaging losses and is in discussions to be acquired by its major shareholder Samsung in a $800 million cash and debt assumption deal. Flagging Apple Computer (AAPL) has been losing revenues and market share amid major losses.

But overall, the industry is expected to pull off a surprisingly strong quarter.

"Q1 is always a slower quarter for consumer growth," said Todd Bakar, an analyst at Hambrecht & Quist. But he noted that Intel's newly released MMX multimedia enabled chip, along with a strong international consumer market helped to offset "a little softness in the U.S. corporate market."

Bakar suggested that Intel also might be responsible for the surge in growth that hardware companies are encountering. Intel, facing competition from Cyrix and Advanced Micro Devices, may force the microprocessing company to cut its prices--giving computer makers a break on component prices. (Intel is an investor in CNET: The Computer Network)

Meanwhile, Phillip Rueppel, an analyst from Alex. Brown, agreed that most of the stronger players, like Gateway, Dell (DELL) , and Compaq will have a strong quarter.

He pointed out that "although it was a soft quarter on the revenue side, there was no significant pricing pressure, and the margins should hold up."

But a few skeptics remain.

Bakar, for example, expressed concerns that the strong first-quarter earnings were an aberration and that slower growth is still on the way.

Wall Street is particularly worried about Big Blue's future growth. Analysts have recently been paring down their IBM earnings estimates for the year, as concerns arise over its future growth potential.

And just yesterday, Big Blue's shares tumbled as low as 128-7/8 during the day. The stock closed at 131-3/8, down 2-3/8. The computer maker was one of the top three most actively traded issues on the NYSE, with 4.6 million shares changing hands.

Computer manufacturers earnings estimates
Quarterly earnings estimate Reporting date
Fiscal quarter
Compaq Computer
$1.31 April 16 Q1 97
$2.31 April 23 Q1 97
($1.22)* April 16 Q2 97
AST Research
($0.53)* N/A Q1 97
Gateway 2000
$0.85 April 24 Q1 97
Hewlett Packard
$0.80 May 15 Q2 97
Dell Computer
$0.92 May 14(tent.) Q1 98
*denotes a loss
Source: First Call