02/05/96 CTRL-ALT-SLOWDOWN

CTRL-ALT-SLOWDOWN
PC makers are facing less-than-expected sales growth
Time for personal computer companies to think about pushing the reboot button. After phenomenal growth of more than 20% in each of the past two years, PC sales are finally slowing. And it's happening all too quickly for some PC makers and retailers.
That's evident from the earnings hit many companies are taking. Apple Computer Inc. and AST Research reported fourth-quarter losses, and Intel, Dell Computer, and retailer Best Buy each have announced weaker-than-expected profits in recent weeks. On Jan. 19, Packard Bell Electronics Inc. handed out pink slips to 250 workers after it lowered its outlook for the first half of 1996. IBM says it posted double-digit sales increases in PCs, but analysts think it barely eked out a profit in the segment.
Even high-flying Compaq Computer Corp. is turning wary. On Jan. 24, it reported strong fourth-quarter earnings, excluding special charges, of $323 million, up 33% from the same period last year, on revenues that were up 45% to $4.7 billion. But Compaq's share price fell 1 7/8 points, to 47 3/4, when CEO Eckard Pfeiffer warned that price-cutting would continue to cut into gross margins this year. ``We are moving forward with a clear goal of continued market share growth. That requires timely pricing actions,'' says Pfeiffer.
The troubles are more than a momentary blip on the screen. Sanford C. Bernstein & Co. is projecting that U.S. PC sales growth will fall to just 15.2% this year and will keep falling in the following two years. The sizable decline is already hitting some component makers. At Intel Corp., higher marketing costs drove up fourth-quarter selling and administrative expenses by 42%, to $569 million, during the quarter. Quarterly earnings more than doubled anyway, to $867 million on sales of $4.6 billion, but even that was below Wall Street's expectations.
BRIGHT SPOT. There is a plus side. With Internet use expanding like mad, International Data Corp. predicts that sales of servers, which manage networks of PCs, will jump 38%, to $3 billion in 1996. IDC also figures U.S. notebook PC sales will grow 23% this year, to $12.2 billion, up from a 12.6% rise in 1995. Microsoft is another bright spot. In the latest quarter, its earnings soared 54%, to $575 million, on strong sales of its Windows 95 software.
But some outsiders think the surge of Win95 upgrades this year will be less than expected, partly because many companies are holding off on the costly conversion. PC sticker shock is another worry. Last year, average consumer PC prices rose 8%, twice the historical rate, to $1,875, figures market researcher IDC/Link Inc. You can just about hear PC executives mumbling: ``Now, which key do we hit to make them keep buying?''
By Gary McWilliams in Houston, with bureau reports