PC Makers Gain As Mainframe Firms Struggle
Compaq, Sun Microsystems To Post Jump in Net; DEC, Unisys Faltering
By G. Pascal Zachary and Stephen Kreider Yoder, Staff Reporters
The Wall Street Journal
December 28, 1990
Recession talk has cast a pall on the computer industry, but some desktop-computer makers are still shining.
Analysts say results for the December quarter will illustrate a continued split of the industry, in which many makers of mainframes and minicomputers post smaller gains while makers of personal computers and workstations prosper.
Digital Equipment Corp., based in Maynard, Mass. -- once a highflier that used its minicomputers to tweak the noses of oldline makers of more expensive mainframes -- is getting some nose-tweaking of its own by the likes of Mountain View, Calif.-based Sun Microsystems Inc. with less expensive, fast workstations. Thus analysts say DEC profit will drop as much as 60% in its fiscal second quarter ending Monday.
A big part of the problem for DEC and other companies such as Blue Bell, Pa.-based Unisys Corp., which analysts expect to post a fourth-quarter net loss, is the rapidly growing trend toward open systems -- computers that use standard software such as programs written for Unix operating systems. That hurts makers of proprietary systems -- those that run software written only for them.
But it's a boon for Sun and large PC makers such as Houston-based Compaq Computer Corp., which, despite recession signs, continue to post strong gains. Analyst Bruce Lupatkin of Hambrecht & Quist Inc. expects Compaq to post a 70% rise in fourth-quarter earnings to $133 million, or $1.55 a share, from the year-earlier $79 million, or 92 cents a share, on a 40% revenue gain to $1.1 billion from $788 million.
Compaq's growth is outpacing other leading desktop-computer makers mainly because of its huge presence in the booming market for laptop and notebook computers, said Mr. Lupatkin.
Sun Microsystems is expected to post strong gains in profit and revenue for its fiscal second quarter ending Monday. Peter Rogers, an analyst with Robertson Stephens & Co., expects Sun's profit to increase 73% to $35 million, or 34 cents a share, from $20.2 million, or 23 cents a share, on a 22% rise in revenue to $725 million from $595 million a year earlier.
Not all desktop makers are in the pink. Cupertino, Calif.-based Apple Computer Inc., for instance, is expected to post roughly flat results for its fiscal first quarter ending Monday. Mr. Lupatkin, of Hambrecht & Quist, expects slightly lower profit of $115 million, or $1 a share, vs. $125 million, or 96 cents a share, a year earlier. Sales are expected to exceed $1.5 billion vs. $1.49 billion. For Apple to see stronger sales, it needs to enter the laptop and notebook market, Mr. Lupatkin says.
Some old-line makers -- including DEC -- have bigger problems as recession fears slow capital spending. Robert Herwick of Hambrecht & Quist, who admits he is "a rip-roaring bear" on Digital, expects the company to post lower net income of about $60 million, or 50 cents a share, for the quarter, compared with $155.4 million, or $1.25 a share, a year earlier. He expects sales of $3.1 billion vs. $3.18 billion.
Also, Mr. Herwick says, "the shift away from proprietary systems to Unix systems in the workstation market is costing DEC market share." That has hurt Unisys, too, says analyst Stephen Cohen of SoundView Financial Group. He expects Unisys to post a net loss of $46 million, or 29 cents a share, for the quarter on lower revenue of $2.8 billion. A year earlier, Unisys earned $34 million, or five cents a share, on revenue of $2.97 billion.
Unisys is struggling because of a heavy debt load and users defecting to open systems, Mr. Cohen says. "The old core business is declining in profitability and the new open-systems business they're growing to replace that with has inherently lower margins," says Mr. Cohen.
Spending slowdowns in the security and banking industries have hurt Cupertino, Calif.-based Tandem Computers Inc. more than expected, says analyst John Jones of Montgomery Securities. He recently lowered his earnings estimates for the company and now expects net income in its fiscal first quarter ending Monday to fall 74% to $8 million, or seven cents a share, from $30.7 million, or 29 cents a share, a year earlier. He sees sales rising 4.7% to $457 million from $436.5 million.
A general slowdown in capital spending could be helping Sunnyvale, Calif.-based Amdahl Corp., because its IBM-compatible mainframes are less expensive than International Business Machines Corp.'s own machines, Mr. Jones says. He expects Amdahl's fourth-quarter net income to rise 49% to $62 million, or 55 cents a share, from $41.6 million, or 38 cents a share, a year earlier. He expects revenue to decline to $615 million from $625.8 million, partly because of a product transition.
Armonk, N.Y.-based IBM, meanwhile, is expected to have a respectable fourth quarter, in part because of the success of its new air-cooled mainframes, says Mr. Cohen of SoundView. He expects higher net income of $2.3 billion, or $4 a share, vs. the year-earlier $591 million, or $1.04 a share, including a $2.42 billion pretax charge. Mr. Cohen expects sales of $22 billion vs. $20.4 billion last year. He says IBM's introduction of ES/9000 computers last fall spurred sales.
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