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Slow Q2 nothing unusual for most hardware firms

Slow Q2 nothing unusual for most hardware firms

Despite a slew of recent earnings warnings from their software counterparts, the IT hardware industry should improve upon last year's second quarter amid the usual seasonal slowdown, according to analysts.

Intel, Advanced Micro Devices (AMD), Apple, and IBM are all due to report quarterly earnings. Sun and Gateway will post their latest financial data in two weeks. Dell and HP are on different fiscal cycles from the rest of the industry, and won't report earnings for another month. In terms of revenue, Intel and AMD are expected to show normal seasonal downturns, but healthy increases compared to last year's second quarter.

Consumers typically took a break from buying PCs in the second quarter, and shipments were expected to plunge about 18 per cent from the first quarter of this year to the second quarter, vice-president of client computing for IDC, Roger Kay, said.

However, the second quarter was generally strong for enterprise hardware purchasing.

Government and educational customers tended to lift commercial shipments in the second quarter, Kay said.

That purchasing lift did not extend to the software industry this quarter, raising questions about the overall health of corporate spending.

Enterprise software companies such as PeopleSoft, Siebel Systems, and BMC Software have all warned, recently, that second quarter revenues will miss earlier targets.

Commercial PC customers were in the middle of a long-delayed PC upgrade cycle, and these customers represented about 60 per cent of all PC purchases in any given quarter, Kay said.

The continued strength in corporate sales should keep the overall PC numbers close to normal seasonal patterns from the first quarter to the second quarter, and US shipments should increase about 11.6 per cent compared to last year's second quarter, he said.

There had been reports of weakness in certain PC sectors, mainly among hard drive vendors, Kay said.

Maxtor warned of a wider-than-expected loss in the second quarter after getting caught with an oversupply of hard drives, but that weakness should be confined to the hard-drive vendors and probably won't expand to PC vendors, he said.

In fact, that oversupply should help keep PC prices down for IT managers in the upcoming months, Kay said.

Memory and display prices were also starting to ease after a brief increase, he said.

Overall semiconductor revenue followed the normal patterns in the first half of the year, senior analyst with Merrill Lynch, Joe Osha, said. The month of June was a little weaker than usual, but it shouldn't be enough to affect most semiconductor companies, he said.

Lehman Brothers said it still expected Intel to record about $US8.1 billion in revenue in the second quarter. In June, Intel said it expected to post $US8.0 billion - $US8.2 billion in revenue in the second quarter.

However, Lehman said it was cutting its estimates for Intel's third-quarter results on expectations that PC demand might be less than anticipated at the start of the second half of the year.

The delay of Intel's Grantsdale chipset launch might have helped to push sales of new PCs farther out into the third quarter, Lehman said. AMD's Opteron processor continued to account for the company's improving revenue picture, Osha said. But flatter prices for Not Or (NOR) flash memory should help keep its overall earnings in line with previous expectations, he said.

NOR is used in cell phones and embedded devices to store data without a constant supply of power. It is starting to become more attractive to smart phone designers as the price comes down.

Flash memory is the largest segment of AMD's revenue, and the company is therefore more exposed to pricing changes in that market than Intel. Strong iPod sales should lift Apple to another strong quarter, global technology strategist at Merril, Steven Milunovich, said. Any future impact felt from the recent suspension of iMac orders should be offset by the introduction of the iPod Mini in Europe and the launch of HP's iPod product line in the third quarter, he said.

The second-quarter picture appeared rosier for Sun for the first time in a while, based on strong sales of the Sun Fire V1280 and E2900 midrange servers, Milunovich said.

Merrill raised its estimates for Sun's second-quarter revenue, but still expected the company to post a loss and still would not recommend the stock as a long-term investment, he said.


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