Analysts at Deutsche Morgan Grenfell are taking a bullish stance on the PC hardware industry, predicting 15.4% unit growth and 12% revenue growth for fiscal 1998. Overall, DMG’s outlook is less conservative than BancAmerica Robertson Stephens, which is looking for only 13% PC unit growth in 1998 (CI No 3,323). DMG says that the economic crisis in the Asia-Pacific region, which provided 23% of worldwide PC demand in 1997, will have its impact limited by increasingly strong demand in Europe, a market with roughly the same 1997 demand levels as Asia. The analysts also cite the fact that most top-tier vendors have somewhat limited Asian exposure (Dell Computer Corp at 7% of overall sales, Compaq Computer Corp at 10% and Gateway 2000 Inc at only 3%) and point to strong corporate demand and server sales in the US market. DMG figures Compaq will benefit from low component costs and a strong average selling price to beat its $0.83 per share estimate for the fourth quarter. It predicts Gateway will earn as much as $0.50 per share for the quarter on the back of strong server sales, when the Wall Street consensus is only $0.44. DMG has also upped its estimate for Dell to $0.78 from $0.76 on revenue that should grow 50% year over year, while the consensus is $0.75. Earnings estimates for Dell’s FY1998 have also been bumped up to $3.50 from $3.45. In the area of semiconductors, Intel Corp should see fourth quarter unit growth of 15% year over year at about 23 million units, leading to a prediction of a $0.03 – $0.06 upside from DMG’s $0.91 estimate. The first quarter 1998 should see flat revenues, however, with unit sales slightly down but average selling price up slightly. For Intel clone makers such as Advanced Micro Devices Inc and Cyrix Corp, unit growth for 1998 should fall in the 13% to 15% range. On the channel front, DMG sees robust corporate demand and consolidation among distributors leading to increased revenues in the near term.
