Sun Microsystems, storage specialist EMC and other companies catering to Internet infrastructure needs will be the winners for the quarter, while companies in other sectors might see modest gains or reversals.
"Some Wintel servers and mainframes don't look as strong to us as storage and some of the Unix servers," Merrill analyst Tom Kraemer said. "Our three favorite names are Sun, EMC and Network Appliance, and we are a little bit more cautious on IBM and (Hewlett-Packard), specifically because of what we've seen going on lately with Wintel."
The root of the problem is lower-than-expected demand, particularly in Europe. Although Europe fared poorly, it will likely pick up by early next year, said Steve Fortuna, PC specialist for the firm.
Still, despite the drop, silver linings exist. The Asia-Pacific region remains a strong market. An unexpected drop in component prices and better availability of processors from Intel could help many PC makers' gross-margin objectives.
"For the third quarter, we're looking for unit growth worldwide of about 17.5 percent," Fortuna said. "We believe that for the fourth quarter--owing to better component availability and comparisons--we could see unit growth north of 23 percent."
Other analysts are not quite as optimistic. International Data Corp. analyst Roger Kay, while saying demand wasn't bad, put year-over year growth closer to 10 percent. He said he's more concerned about "clouds hanging over the fourth quarter."
Dataquest analyst Charles Smulders put growth closer to 15 percent for the second half and 14 percent for the year.
Regarding individual PC makers, Fortuna was most bullish about Gateway.
"Earlier this week, we upgraded Gateway to a 'buy' from 'accumulate,'" he said. "We have huge conviction the company will deliver $2.5 billion when they report on Oct. 12."
Fortuna said Gateway would benefit enormously from "quadrupling the number of retail points of presence vs. the fourth quarter a year ago. In addition, their beyond-the-box (strategy) mixes very strongly."
The Merrill Lynch analyst described Dell Computer's profit warning yesterday as a "disappointment." He noted that while Dell said problems in Europe affected the third quarter, small-business sales appeared to be more of a culprit. Merrill Lynch cut its third-quarter revenue projections for Dell to 21 percent growth from 25 percent and fourth-quarter estimates to 31 percent from 38 percent.
Fortuna said that Compaq Computer is on track with "revenue growth there of 16 percent, or $10.7 billion, and we're looking for operating margins there to expand to 7.2 percent from 5.6 percent."
Apple Computer's profit warning last week, which sent the stock plummeting 52 percent, did not "come as a surprise to us," Fortuna said. "We have not been pushing the stock. We view this to be at most one good quarter left, which is the December quarter, and then we basically said the revenue growth is going to decelerate."
Companies specializing in larger systems, such as servers and storage, are potentially the quarter's biggest winners, Kraemer said.
Kraemer was most bullish on Sun, which he predicted would beat earnings estimates. But he cautioned there could be problems with top-line growth. Because of distribution and other issues, "Sun is not able to fulfill up to 20 percent of the demand in orders that they have," he said.
Network Appliance looks strong, and "EMC is riding a very strong software and accelerating demand for storage," he said.
"The two companies about which we are most concerned are IBM and HP," Kraemer said. While IBM should enjoy quarter-to-quarter and year-over-year improvement in most of its major businesses, currency and global services are sore points. HP faces similar problems to IBM, plus concerns over the printer market.
In the same market, NCR looks to be on track, but some concern surrounds Unisys.