Recession, evolving technology shake up computer industry

UNSETTLED FUTURE

May 04, 1992|By Jonathan Weber | Jonathan Weber,Los Angeles Times

SAN FRANCISCO -- A flurry of developments announced by computer companies last week indicates that turmoil from recession and fast-changing technology is likely to be the rule in the industry for some time.

Nothing better illustrates the continued upheavals than Compaq's announcement that it was withdrawing from the Advanced Computing Environment consortium.

Compaq, along with Microsoft, Digital Equipment, Silicon Graphics and MIPS Computer Systems, played a key role in forming the consortium last year, but has now decided that the consortium does not hold the key to next-generation desktop computing after all. The group had once hoped to set standards based on a computer-on-a-chip from MIPS and a new software operating system from Microsoft.

But Compaq's withdrawal effectively kills the consortium.

IBM, meanwhile, is contemplating an acquisition of Northgate Computer Systems, a Minnesota company that sells cut-rate personal computers by mail. IBM, which all but ruled the PC busi

ness in the 1980s, is still casting about for ways to compete in what has become a price-driven, mass-market business.

These developments take place against a backdrop of ambiguous economic data that has left analysts puzzling over whether the recession -- and the industry's long sales slump -- are coming to an end. The lack of consensus on this issue has contributed to wild swings in technology shares as investors pounce on promising companies and then retreat immediately if earnings are below expectations.

At Hambrecht & Quist's annual technology conference here last week, analyst Bruce Lupatkin noted that "all the traditional industry monopolies are under assault. There are no clear leaders, and that causes the confusion and volatility in the technology stocks."

Hambrecht & Quist analysts said that they see a pickup in orders that indicates the recession is coming to an end, and some computer companies have been reporting good news in recent days.

Intel, which has seen competitors erode its monopoly on the chips that form the brain inside most PCs, said last week that it would spend $2 billion on R&D and capital equipment this year, up from $1.5 billion last year.

And disk-drive vendor Seagate Technology recently reported record earnings and revenues, an indication that the market for disk drives -- and by extension, for PCs -- is picking up.

But Richard Shaffer, publisher of the Computer Letter, is among those who caution against premature optimism. "The industry got burned badly at the beginning of 1991 by betting on an upturn that didn't happen," he noted.

Compaq, which began to flounder last year after a long run as one of the industry's high-fliers, is still struggling to find its feet. Its withdrawal from the consortium, foretold when it sold its stake in work station vendor Silicon Graphics in January, shows how dramatically it has scaled back its ambitions since founder Rod Canion was ousted as CEO last year. Under Eckhardt Pfeiffer, the company is focusing on being competitive in the low-end PC business.

Last week, Compaq reported that earnings for the first quarter of 1992 fell 60 percent to $45 million, or $0.53 per share. Sales plunged 19 percent to $783 million.

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