Computer retailers receive a jolt, but optimism appears unshaken

The Outlook

November 03, 1996|By Liz Bowie

LAST WEEK, stocks of computer retailers took a dive after analysts suggested slower sales ahead for the key holiday buying season. Despite the fact that CompUSA Inc. reported its earnings had doubled for the quarter ended in September, its stock price fell $11 after Salomon Brothers analyst David Childe suggested the company's growth would be flat. The pessimistic mood rubbed off on other retailers such as Tandy Corp., owner of Computer City, and even Best Buy Inc., which sells a wide range of electronics and appliances besides computers.

Some analysts say profits the industry churned out as Americans rushed to buy their first PC or the latest innovation over the past two years cannot continue. They portray the holiday period ahead as one in which retailers will brandish incentives such as no down payments, no interest and no payments for six months, and free monitors or printers. The consumer will be the winner.

In the long term, other analysts say, the stocks will continue to be winners.

What does lie ahead for sales of personal computers in the next several months? Is the buying spree of the past two years over or is there just a lull coming up? Are there any hot new products that would rescue the season?

James Halpin

CompUSA Inc. president and chief executive officer

We are cautiously optimistic. We have inventory, we have products and we are counting on the customers to show up. There always is a Santa Claus. Some years it is a little late. This year the hot products will be the high-end notebooks, 200 megahertz desktops, games and the Internet. We reported doubling profits and 7 percent growth of store sales. Sales of personal computers still look fine.

Randy Befumo

Editor, news and research, the Motley Fool online investment newsletter

If you look back to the first quarter of this year and you look at the personal computer stocks, they were all at their 52-week low. The big research organizations were all saying PCs sales growth will slow. People were all afraid personal computer sales were going to fall through the floor. Actually, it wasn't horrible. It grew at 16 to 17 percent rather than 18 percent. It is this little tiny shift.

In September everyone was predicting Christmas is going to be amazing. Look, these companies are going to have cheap products. There will be lots of demand. Intel has had a great run. Now there is a lot of data in the channel suggesting that sales growth is flat or negative. CompUSA is still in the 7 to 8 percent range, which most retailers would kill for. When Windows 95 came out, there was a $5 million advertising campaign and a spike in sales. A year later they are coming up with tough sales comparisons. It doesn't take a rocket scientist to figure out that there might have been a blip last year rather that the apocalypse now.

I am starting to look at these companies and saying, hey, they look cheap again. Wall Street has totally lost sight of what will happen in five years. There are 36 million households with a PC. A PC is sort of like a bathroom. There need to be as many PCs in a house as bathrooms. Sometimes a child doesn't want to share his bad poetry with his mom. Most households are going to end up with more than one computer. You figure that ultimately that is a lot of computers that need to get sold. I think if there is a great company out there that sells computers, they are a good find.

James Cramer

President, Cramer Partners, New York

I have traded in this market. I think [Salomon analyst David] Childe is wrong. I bought 150,000 shares of CompUSA [when it lost $11]. I would have bought more, but I looked up and it was 4: 30. I think the stock is going much higher. I think the industry is very robust. You buy personal computers through the mail these days. We are incredibly optimistic. I speak to the guys who ship and buy. I think they [the analysts] are dead wrong.

Bob Gellman

Vice president for North American sales, Computer City

Our unit sales are up. We don't think sales are quite as strong as they were a year ago.

The customer is very excited. We have manufacturers offering price incentives. We are very optimistic about the fourth quarter. The software applications are better than they were a year ago.

We are finding more and more families are buying their second and third computer -- more powerful, bigger hard drives -- and giving the other computer to a youngster.

There is a lot of new technology about to hit the market: video conferencing, video cards -- there are some great video cards -- much faster graphics than they have every had before. You have web television. There are a lot of great products and applications that didn't exist before.

In my opinion we always seem to have gloomy predictions. I think unit sales are going to be up compared to a year ago.

Pub Date: 11/03/96

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