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April 5, 1989

TANDEM WARNING GIVES WALL STREET THE SHIVERS OVER EUROPEAN COMPUTER MARKET PROSPECTS

By CBR Staff Writer

The more perceptive market watchers on Wall Street are taking the news that Tandem Computers Inc has ben underperforming in Europe (CI No 1,149) very seriously indeed, the reason being that the performance of Tandem has often in the past turned out to be a lead indicator for the rest of the industry – if Tandem starts doing badly this quarter, a whole host of companies may find themselves in the same boat next quarter. Tandem unhelpfully declines to say in which countries the shortfall has occurred, so the problem could just be competitive pressure from Stratus Computer Inc, which says it has had a very strong first quarter in Europe. But the Tandem announcement has made waves across the Atlantic only because it is the first major American computer company to report problems in Europe: ICL and Ferranti Computers, by their lay-offs and plant closures, make it pretty clear that they are battening hatches for what they see as tough times ahead this year, and the problems of Nixdorf Computer, Norsk Data and Olivetti are well documented. When the message sinks in on Wall Street, it is likely to mean that the computer sector will see further falls in share prices, which could take the IBM share price below $100 and DEC below $80; Tandem’s shares slumped $2.125 to $14.875 on the announcement. Commenting on the outlook, Hesh Wiener of Technology News of America says In order for computer stocks to rise, Wall Street will either have to get some very good news about the industry, decide it has over-reacted, or get so upset about every other industry that IBM and other computer companies serve as a refuge. Either way, the outlook for the market – and business – is dull.

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