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Merrill cuts PC growth outlook

As growth gets slower in the world's PC markets, Merrill Lynch reduces its forecasts for the current year from a 7 percent to a 3 percent increase.

Growth is getting ever slower in the world's PC markets, according to Merrill Lynch, which reduced its forecasts for the current year from a 7 percent to a 3 percent increase.

But analyst Steve Fortuna said in a research note Tuesday that while this year could be weak, things are beginning to look up.

"Next year could be surprisingly strong in light of the current deferrals coupled with a number of important growth drivers in place," he said, pointing to the release of Windows 2000 and its updates, and the "re-acceleration" of the small-business, European and consumer sectors.

As a result, he raised his 2002 worldwide unit-growth estimates from 15.5 percent to 17.5 percent. He upped unit-growth rates for the United States from negative 3.5 percent to 1 percent, and for Europe from 1 percent to 5 percent.

The largest estimate increase came in Japan, where Fortuna increased 2002 unit-growth rates from 6.5 percent to 12 percent.

Fortuna said Dell Computer was best positioned to take advantage of the growth "owing to the company's increasing mix of enterprise-class products."

Fortuna had already cut growth figures for 2001 in February. And he wasn't alone: Goldman Sachs analyst Rick Sherlund lowered his outlook on Microsoft back in March, based on similar concerns about the PC market.

Market research firm Dataquest recently predicted that worldwide PC sales would grow only 10.7 percent this year, or about 4 points lower than in 2000. U.S. sales are expected to be at best flat year-over-year, the company said.

That was one of the factors that went into Fortuna's most recent cut, he said. He also pointed to sluggish sales for PC motherboard companies in April, off 24 percent from March. Since May and June numbers "typically build sequentially from April, second-quarter shipments could be flat to down 3 percent from the first quarter," rather than flat to up 3 percent as they normally are, he said.

Recent reports from distributors Tech Data and Ingram Micro were not optimistic regarding demand.