Dataquest and International Data Corp. (IDC) today reported some very interesting numbers on PC sales -- showing stronger-than-expected growth and Hewlett-Packard gaining market share at the expense of IBM and Apple. We explore this more fully in a Special Section and also in MF Templar's Fool on the Hill tonight. MF Merlin's Economic News today covers the Commerce Department's report on new home sales during March. You'll find the Economic News and our Special Sections on the Evening News screen. Enjoy!
Today Fooldom unveils two new products. The first is a spin-off of the Evening News, called The Lunchtime News, and it is detailed at the bottom of this report (let us know if you want a free two-week trial subscription!). The second is MF Bogey's Industry Olympics -- examining a different industry each week, and coming to you first as a Fool Fax! The first issue covers the Storage Technology industry and features an interview with MF Chiros. For more information, e-mail [email protected] or call 1-888-FAX-FOOL before 11pm EDT.
Computer Sciences Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSC)") else Response.Write("(NYSE: CSC)") end if %> and The Continuum Company <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNU)") else Response.Write("(NYSE: CNU)") end if %> today announced an agreement to merge, in a $1.5 billion stock swap deal. Both companies specialize in consulting and computer services and the respective chief executive officers (CEOs) expect enhanced abilities in the financial services market. Continuum was rocketed ahead $12 1/4 to $57 5/8, while CSC dropped $2 3/4 to $75 3/8. DST Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DST)") else Response.Write("(NYSE: DST)") end if %>, which provides online record-keeping and accounting services for financial companies, owns about 23% of Continuum, explaining its $2 1/4 to $37 3/4 rise today.
Zytec <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZTEC)") else Response.Write("(NASDAQ: ZTEC)") end if %>, supplier of power conversion equipment to the likes of IBM, Cisco, Hewlett-Packard, Xerox, Sun Microsystems and other modest establishments, shot up $4 to $28 today. The company reported record first quarter earnings last week, with sales up 86% from the year-ago quarter. Perhaps the reason for today's sharp spike was that on Sunday night, MF Boring announced that he was adding the company to his Bore-folio?
GeoWorks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GWRX)") else Response.Write("(NASDAQ: GWRX)") end if %> announced an alliance with NEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NIPNY)") else Response.Write("(NASDAQ: NIPNY)") end if %> today, in which the companies would develop "smart phones" for the Japanese market. GeoWorks CEO Gordon Mayer explained that, "Partnering with the leading provider of digital handsets in the Japanese market further validates our vision that GEOS is becoming a global operating system standard for smart phones." Smart phones are designed to integrate many functions into one hand-held product -- including phone, e-mail, fax, voicemail, and even Internet access. GeoWorks shares shot up $4 1/4 to $37.
Sunrise Medical <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SMD)") else Response.Write("(NYSE: SMD)") end if %> blew away earnings estimates today, reporting $0.14 per share, when only $0.05 was expected. Third quarter sales of the institutional and home-care medical product manufacturer grew 14%, mostly due to acquisitions, and shares rose $2 3/8 to $17 5/8. Earlier this month, Sunrise announced a three-year contract to be the VGM Group's major health care equipment supplier -- a deal valued at $252 million. The VGM group had been partly drawn to Sunrise because of SunMed Services, a new logistics division which helps cut costs and improve efficiency.
QUICK TAKES: MICROTOUCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MTSI)") else Response.Write("(NASDAQ: MTSI)") end if %> got a touch dizzy today, rising $1 15/64 to $18 15/64 after announcing a new flat-panel, touch-input display last week which is targeted at point-of-sale, medical and industrial markets. . . HOMETOWN BANCORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HTWN)") else Response.Write("(NASDAQ: HTWN)") end if %> shot up $3 1/16 to $16 13/16 today, after a merger with HUBCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HUBC)") else Response.Write("(NASDAQ: HUBC)") end if %>, owner of Hudson United Bank in New Jersey, was announced. . . ZENITH ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZE)") else Response.Write("(NYSE: ZE)") end if %> advanced $1 to $7 1/8 on the heels of an agreement with US Robotics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> to jointly market cable modems with data capabilities for cable TV subscribers. . . INTERNEURON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IPIC)") else Response.Write("(NASDAQ: IPIC)") end if %> surged $3 5/8 to $37 1/8 after the FDA gave a marketing go-ahead to Redux C-IV, a prescription treatment for obesity. . . DELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DELL)") else Response.Write("(NASDAQ: DELL)") end if %> said at the Hambrecht & Quist conference today that it sees 1996 PC growth close to 20%, boosting confidence in the company and sending shares up $2 3/4 to $46 5/8.
Will they return the wedding presents? Metromedia International Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMG)") else Response.Write("(NYSE: MMG)") end if %> and Alliance Entertainment Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDS)") else Response.Write("(NYSE: CDS)") end if %> announced that they have terminated their agreement to merge, citing "changing conditions". Metromedia's chairman reiterated his company's commitment to growth, and said that a previous agreement to acquire The Samuel Goldwyn Company <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SG)") else Response.Write("(NYSE: SG)") end if %> "remains on course." Alliance CEO Joseph Bianco added that Alliance's board of directors felt that it was in the best interests of stockholders for the company to remain independent. Apparently, many investors disagreed, sending shares plummeting $3 to $6.
Canandaigua Wine <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WINEA)") else Response.Write("(NASDAQ: WINEA)") end if %> soured today, forecasting net income of $0.17 per share for the six months ending this past February 29, compared to $1.11 a year earlier. The company cited higher non-recurring costs, SG&A (selling, general and administrative) expenses and lower gross margins, due mainly to the rising cost of grapes. Investors sniffed the bouquet of this news and stomped the stock down $6 3/4 to $29 3/4. Canandaigua imports and markets alcoholic beverages under such names as Inglenook, Paul Masson, Manischewitz, Corona, Tsingtao, St. Pauli Girl, and Skol vodka.
MidAtlantic Medical Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MME)") else Response.Write("(NYSE: MME)") end if %> got hosed today, down $4 to $19 3/4 after warning that first quarter earnings would be 28% to 36% below the year-ago quarter, due to a changing product mix and competitive pricing pressures. Salomon downgraded the company from "strong buy" to "buy", while Merrill Lynch downgraded it from near-term "accumulate" to "neutral", keeping its long-term "accumulate" rating. Salomon analyst Robert Hoehn pointed to continued Medicare losses and flat premium rates.
QUICK CUTS: SUMMIT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BEAM)") else Response.Write("(NASDAQ: BEAM)") end if %> got beamed down $2 1/4 to $17 1/4 today when Morgan Stanley downgraded the stock all the way to "neutral" from "strong buy". The laser vision systems developer has already been falling in recent days, due to an FDA investigation, among other things. . . Israeli printing press manufacturer INDIGO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INDGF)") else Response.Write("(NASDAQ: INDGF)") end if %> bled red ink as it fell $2 1/8 to $13 7/8 after posting a $0.35 per share loss, compared to a loss of only $0.01 last quarter. The company also announced it would raise $100 million in a private placement. . . AUTHENTIC FITNESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASM)") else Response.Write("(NYSE: ASM)") end if %> dropped $1 5/8 to $23 5/8 after announcing a one-time charge related to receivables which may not be collected from Herman's Sporting Goods, which filed for bankruptcy on Friday. . . WEDCO TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WEDC)") else Response.Write("(NASDAQ: WEDC)") end if %> tumbled $1 13/16 to $17 3/16 after its shareholders okayed a merger with ICO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ICOC)") else Response.Write("(NASDAQ: ICOC)") end if %>.
FOOL ON THE HILL:
Quest for Data
Get out the green eyeshades and roll up your sleeves -- the data came pouring in today. Dataquest and International Data Corp. (IDC) unleashed their quarterly numbers for the personal computer industries, delineating the winners and the losers via cool and calculated assessment of unit sales and market share. Computer Intelligence InfoCorp. and Audits & Surveys Worldwide did not want to be left out either, chiming in with retail sales data for the PC industry.
The Dataquest and IDC numbers are the most revealing, although they are somewhat inconsistent when compared. Dataquest released its estimates of personal computer unit sales for the first quarter of 1996 and it looked something like this:
WORLDWIDE:
1. Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> was up 27% with 1.59 million units shipped.
2. IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> was up 14% with 1.17 million units shipped.
3. Apple Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AAPL)") else Response.Write("(NASDAQ: AAPL)") end if %> was down 11% with 940,000 units shipped.
4. Packard Bell was up 18% with 820,000 units shipped.
5. NEC Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NIPNY)") else Response.Write("(NASDAQ: NIPNY)") end if %> was up 37% with 815,000 units shipped.
UNITED STATES/NORTH AMERICA:
1. Compaq was up 36% with 715,000 units shipped, a 12.7% market share.
2. Packard Bell was up 5% with 620,000 units shipped, a 11.0% market share.
3. Apple Computer was down 14% with 415,000 units shipped, a 7.3% market share.
4. Hewlett Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> was up 138% with 405,000 units shipped, a 7.2% market share.
5. IBM Corp. was down 18% with 345,000 units shipped, a 6.1% market share.
IDC's numbers for the top five U.S vendors looked like this:
1. Compaq grew 39.6%, shipping 740,000 units and increasing its market share to 12.9% from 10.6% last year.
2. Packard Bell grew 4.9%, shipping 620,000 units while seeing its market share drop from 11.8% to 10.8%.
3. Hewlett-Packard expanded unit sales by 132%, shipping 401,000 computers and increasing its market share to 7.0% from 3.4%.
4. Apple Computer saw unit volume fall 22% to 370,000 with its market share dropping to 6.5% from 9.4% last year.
5. Gateway 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GATE)") else Response.Write("(NASDAQ: GATE)") end if %> sold 341,000 units, increasing unit volume by 26% and moving its market share up to 6.0%.
The most striking thing about IDC's numbers is the complete absence of IBM from the North American numbers. For the first time since IBM started rolling personal computers off of the production line fifteen years ago, Big Blue did not make the IDC Top Five. Needless to say, there was probably much weeping and gnashing of teeth in Armonk, New York today. That Dataquest lists IBM as selling 345,000 and IDC has Gateway ahead of IBM with 341,000 points to the fact that this was not a major upset and probably well within the standard deviation. Still, being down 18% from year-ago levels because of inventory woes is not something I would want to be explaining to Lou Gertsner.
Out of all this data comes an overall positive impression of the industry. Sure, this is not the 25% growth in personal computers that we have become accustomed to in the past two years, but it ain't too shabby either. Retail sales data offered up from three sources (Computer Intelligence, Audits & Surveys and CompUSA) supported the Dataquest and IDC data that showed 14% to 15% growth in the first quarter.
Computer Intelligence InfoCorp. reported today that it saw a 26% jump in PC unit sales at the 1,100 retail and business dealers that it maintains a close watch on, compared to last year. Audits & Surveys Worldwide told investors today that it saw a 15% increase in PC unit sales for the first quarter at the 5,000-some retail outlets that it watches. Audits includes department stores and mass-merchant outlets in its numbers while Computer Intelligence does not, highlighting the strength in the corporate and high-end consumer market and the relative weakness in the starter PC business. The PC and retail analysts were uniform in saying that demand was sluggish for the first two months of this year, but corporate buying picked up appreciably in March to boost the overall results. CompUSA's recently reported 14% growth in same store sales for the first quarter shows growth was "end-loaded" as well.
But what does all this mean? The differentiation between personal computers aimed at consumers and enterprise systems aimed at corporate users is showing that these are well on their way to becoming two unique markets. Apple Computer, IBM and Packard Bell all were stuck with large inventories of low-end machines that had been aimed at the consumer market. Betting on 75-megahertz Pentiums or the equivalent Macintosh with low DRAM was just not a smart move, as any of these three companies can tell you. Whether it was Packard Bell requiring Intel to convert 14% of its accounts receivable into a loan, Apple's continuing inability to make low-end PCs profitable or IBM's grim musings about their PC business in their last conference call, it does not look like business is getting any better for consumer PCs.
In contrast, strong demand for high-speed Pentiums drove Hewlett Packard's Pavillion entry. Sales of the new entry represented an impressive 25% of H-P's sales for the quarter. Dell's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DELL)") else Response.Write("(NASDAQ: DELL)") end if %> comments today at Hambrecht & Quist also showed that its business customers are buying again. IDC was pretty clear in its press release that corporate customers for Gateway 2000 units had a marked effect on their results. Compaq's stress on mid-level and high-level systems in the last quarter completes a picture of companies with strong brand-names in the business market continuing to churn ahead while companies dependent more on the consumer side of the house are feeling some pain.
This is not a trend that is going to disappear anytime soon. With Japanese consumer electronics giants like Sony <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNY)") else Response.Write("(NYSE: SNY)") end if %> threatening to get in on the consumer PC action, the gulf between PCs and enterprise systems will continue to grow. If the personal computer truly becomes a home appliance like the television, odds are the increasingly erratic profits from companies focusing on this niche will get even more volatile. It was not that long ago when the television was a pretty high margin, high-tech gadget that American companies made beaucoup bucks on. If history repeats itself and the personal computer becomes an appliance produced by Southeast Asia and Japan, American manufacturers that focus on this segment will become increasingly vulnerable to being taken out by lost-cost producers -- particularly if their brand is not that strong.
Sales of servers and enterprise systems to the corporate market and high-end systems to consumer market is what made the difference between victory and defeat for personal computer manufacturers this quarter. Investors who own computer systems stocks should factor this in when they glance over their portfolio tonight and try to make sense of today's data. The value of the brand, illustrated by Hewlett-Packard's roaring success, should also be taken into account when evaluating your holdings. Concentrating on companies able to maintain strong margins by selling high-end systems and servers with the brand power to inspire consumer confidence makes the most sense here.
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