Analyst believes Apple Computer continues to lead the PC industry in innovation
(online at http://archive.twst.com/notes/articles/nav810.html)
Five analysts and top management from nine sector firms examine the computer hardware sector in this special 47-page Computer Hardware issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info384.htm
TWST: What will drive growth for the industry over the next several quarters?
Mr. Bailey:
It's different for the PC vendors and the enterprise vendors, and I think this is an important distinction. PCs tend to be very much headcount-related. Because there is typically a lag in hiring after a turnaround in the economy, we would expect the rebound in PC demand to be relatively slow in 2002. With enterprise hardware, there are really two drivers. One is new applications and the second is business volumes. As the economy picks up, business volumes increase, and that should have an almost immediate positive impact on enterprise hardware demand as customers upgrade their systems. We believe that new applications will lead to a second wave of increasing demand once the economy turns around and customers begin to either restart or accelerate some of the projects that had been deferred during the economic slowdown.
TWST: Apple has announced some interesting new products as of late. Are we seeing any other new products or applications coming out?
Mr. Bailey:
Apple continues to lead the PC industry in innovation, in our opinion. The company completely revamped its portable product line in 2001, and we expect Apple to make significant enhancements to its desktop offerings in 2002. These enhancements began early this year, when Apple announced a completely redesigned iMac consumer desktop that has far greater performance and functionality than its predecessor. Sometimes overlooked, but just as important, in our opinion, is Apple's portfolio of software products. Apple has rolled out an entire suite of software products that enable consumers to capture, edit and distribute digital audio and video using very powerful but easy to use applications.
TWST: Is there anything else coming on the market?
Mr. Bailey:
From a WinTel PC perspective, unfortunately the innovation has almost ground to a halt. There has been a lot of discussion about tablet PCs and wireless mobile computing, but we view most of these initiatives as more evolutionary than revolutionary. In addition, they may not garner a great deal of initial enthusiasm from either corporations or consumers.
TWST: Is there much investor interest in the group today?
Mr. Bailey:
Yes, there's always a great deal of investor interest in computer hardware and rightfully so. It's a very dynamic sector, where strategies and products are frequently changing. This can enable new leaders to emerge. So from that perspective, we feel that the sector provides a very exciting investment opportunity long term. We have seen recently that when there are indications that the economy may be improving, that many of the stocks that act best are the technology stocks, and we think that will happen when the economy does turn around.
TWST: When do you anticipate a recovery in the economy?
Mr. Bailey:
At this point, we would expect things to start to improve around the summertime. However, we're assuming that it will be a relatively slow recovery, at least initially.
TWST: We were talking about investor interest. What is most important to investors today?
Mr. Bailey:
When is the turn coming? The number one question we hear is, when do we believe the demand will pick up again, because that would benefit virtually every player in the sector. What we try to do with our coverage, as much as we can, is to try to separate out the economic factors from the company-specific factors and concentrate on those items that the companies control themselves. That is why we are bullish on both Sun and Apple at this point, because they're both moving into strong product cycles.
