THE DAY AHEAD: Market bottoms, price wars and PDAs

COMMENTARY--If you want to know where the tech sector is going, don't bother asking a high-tech CEO.

That's the lesson from New York's Merrill Lynch Technology conference, where CEOs were accosted by a gaggle of reporters all wanting to know when things would get better. When will the PC market rebound? When do you see the macroeconomic conditions getting better?

Surprisingly, no one got hit. But nearly every tech CEO had the same message on Thursday: Visibility is weak, we'll tell you when things perk up, now stop bugging me. If the folks running these companies can't venture a guess, it really makes you wonder what the talking heads on financial TV must be smoking as they call market bottoms.

It all started with Tom Meredith, Dell Computer's senior vice president of business development and strategy, who was talking big about everything except for the PC maker's earnings.

Meredith fielded a few questions after his keynote speech and was inevitably asked to put on his economist hat. When are things going to pick up, Tom?

"The global market is at an inflection point," Meredith said. He went on to explain that we're in a capital spending downturn and companies are laying off folks to compensate. If that affects consumer confidence, it's a rough road and it may be two years before we recover. On the other hand, consumers may stay confident and keep spending, and the economy will be humming by the end of the year. "It's a tough call, and I'm not willing to say," Meredith said. "It's anyone's bet."

Translation: You got a coin, flip it.

So the gaggle then hunted down Compaq CEO Michael Capellas. So Mike, when are we going to feel euphoric again? "I really don't have any brilliant insight to how quickly we'll rebound," he said. When asked specifically about the tech sector and the PC market, Capellas later said, "You can't paint it all with one brush." Capellas said some markets are still spending on information technology, and others have hit the brakes. "You gotta look at it in different buckets," he said.

Translation: Stop asking me dumb questions.

Can't we all just get along?
Dell is simply hellbent on growing market share and slashing prices. To compensate and preserve profits, Meredith said the company will be "ruthless" about cutting costs. Everything from shipping and logistics to layoffs will be considered.

When Dell gains all the market share for PCs, servers, workstations and so on, then the company may raise prices. Of course demand has to pick up, too.

Capellas said Compaq is up to the challenge. "We will be much more aggressive on pricing," he said. "The price war will continue."

When asked whether Compaq could compete with Dell on prices, Capellas said it could because it's better at managing inventory, and he added that component prices have declined in recent months and that 45 percent of Compaq's sales were made directly to end users.

Now that Hewlett-Packard is into the price war, it should be a great time to be a PC buyer. It'll stink to be a shareholder.

Compaq, however, may have an interesting business model down the road. Capellas said as more software gets delivered over the Internet, hardware is likely to be sold on a subscription basis. He dubbed it "utility IT." Under this idea, Compaq signs on to upgrade equipment and keep your network up to date at regular intervals.

Compaq has had a program in place for a couple of years, but it was ahead of its time. Capellas is confident the utility IT theme will work. "IT will be sold as a utility, and it's going to change the way PCs are sold," he said. And I wouldn't count Compaq out; it has the services fleet to pull the utility gig off.

PDAs: Commodities of the future
Seems like everybody was also yapping about handheld computers, also known as personal digital assistants (PDAs).

Meredith said handheld PCs will fall under the same pricing pressure that dinged PCs. Dell may even jump into the mix once a standard between Windows CE and the Palm operating system emerges. Don't hold your breath though, the market remains fragmented.

Compaq talked up Windows CE--not surprisingly, since it's one of Microsoft's best partners. And Handspring talked up the Palm OS.

In either case, there may be a little price war in the handheld market, a point not lost on Lehman Brothers, which downgraded Handspring Thursday. Palm has too much inventory and is cutting prices to dump it. Handspring CEO Donna Dubinsky said it was too early to tell what impact Palm's inventory purge would have, but said sales are a bit soft.

Dubinsky noted that it's early in the handheld game and that some company is going to create an all-encompassing communicator that'll be a hit. "There's 20 years of innovation ahead," she said.

The Handspring CEO said the company will continue to cook up cool consumer gadgets and may one day even use Windows CE instead of Palm. Handspring is agnostic on technology, Dubinsky said. Nothing is in the works yet, but she said she would "never say never."

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