IBM, Sun, SGI, services giant Unisys, and storage specialist EMC are among the major corporate computing companies most likely to exceed consensus estimates for the second quarter, said Steve Milunovich, an analyst with Merrill Lynch.
Success in the corporate computing market field lately derives, ironically, from failure. Hardware companies are currently benefiting from increasing investments in Internet infrastructure by companies putting more operations online, an effort partly fueled by publicized failures at major Web sites.
"Hardware companies should be viewed as Internet infrastructure beneficiaries, essentially the arms suppliers for the Internet wars," said Milunovich. "The eBay outage highlighted the need for reliable and scalable systems."
Concerns over the Y2K technology glitch have also helped. "Demand is good in part potentially because of pull-forward of demand because of Y2K," he said. Although increased Y2K spending creates some uncertainty for the second half of the year, Milunovich nonetheless also cautiously laid out a bright second half. "We do see slow down in the implementation of technology more than purchasing. E-commerce is helping to offset the potential fourth-quarter risk with Y2K."
Four companies stand out from the rest, in terms of exceeding expectations: IBM, Sun, EMC, and Unisys.
Merrill Lynch expects IBM will post earnings of 88 cents a share versus 75 cents a year ago. "Revenue we've got up 12 percent, but it could be more like the first quarter's 15 percent growth rate," said Milunovich.
Merrill Lynch cautiously predicted IBM's PC group to be up 35 percent, but Milunovich suggested possibly 50 percent or better. Months ago, Milunovich was one of the analysts who speculated that IBM might exit the PC business. He also credited new AS/400 models and the G6 mainframe for buoying Big Blue.
Strong Internet growth will push up Sun's earnings. Merrill Lynch predicted 47 cents a share versus 36 cents a year ago.
EMC will beat expectations because of better execution and strong overseas growth. Merrill Lynch predicted 24 cents a share for the second quarter, up from 18 cents a year earlier.
Unisys will continue its recovery and beat expectations, said Milunovich. Merrill Lynch predicted 34 cents a share versus 24 cents a year ago.