Slow Q2 nothing unusual for most hardware firms

As the weather heats up in the Northern Hemisphere, revenue from IT hardware tends to cool off. Despite a slew of recent earnings warnings from their software counterparts, the IT hardware industry should improve upon last year's second quarter amid the usual seasonal slowdown, according to analysts.

Next week Intel, Advanced Micro Devices (AMD), Apple, and IBM will report quarterly earnings. Sun and Gateway will post their latest financial data in two weeks. Dell and HP are on different fiscal cycles from the rest of the industry, and won't report earnings for another month.

In terms of revenue, Intel and AMD are expected to show normal seasonal downturns, but healthy increases compared to last year's second quarter. Consumers typically take a break from buying PCs in the second quarter, and shipments are expected to plunge about 18% from the first quarter of this year to the second quarter, said Roger Kay, vice president of client computing for IDC in Framingham, Mass.

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As the weather heats up in the Northern Hemisphere, revenue from IT hardware tends to cool off. Despite a slew of recent earnings warnings from their software counterparts, the IT hardware industry should improve upon last year's second quarter amid the usual seasonal slowdown, according to analysts.

Next week Intel, Advanced Micro Devices (AMD), Apple, and IBM will report quarterly earnings. Sun and Gateway will post their latest financial data in two weeks. Dell and HP are on different fiscal cycles from the rest of the industry, and won't report earnings for another month.

In terms of revenue, Intel and AMD are expected to show normal seasonal downturns, but healthy increases compared to last year's second quarter. Consumers typically take a break from buying PCs in the second quarter, and shipments are expected to plunge about 18% from the first quarter of this year to the second quarter, said Roger Kay, vice president of client computing for IDC in Framingham, Mass.

However, the second quarter is generally strong for enterprise hardware purchasing. Government and educational customers tend to lift commercial shipments in the second quarter, Kay said.

That purchasing lift did not extend to the software industry this quarter, raising questions about the overall health of corporate spending. Enterprise software companies such as PeopleSoft, Siebel Systems, and BMC Software all warned this week that second quarter revenues will miss earlier targets.

Commercial PC customers are in the middle of a long-delayed PC upgrade cycle, and these customers represent about 60% of all PC purchases in any given quarter, Kay said. The continued strength in corporate sales should keep the overall PC numbers close to normal seasonal patterns from the first quarter to the second quarter, and U.S. shipments should increase about 11.6% compared to last year's second quarter, he said.

There have been reports of weakness in certain PC sectors, mainly among hard drive vendors, Kay said. Maxtor warned of a wider-than-expected loss in the second quarter after getting caught with an oversupply of hard drives, but that weakness should be confined to the hard-drive vendors and probably won't expand to PC vendors, he said.

In fact, that oversupply should help keep PC prices down for IT managers in the upcoming months, Kay said. Memory and display prices are also starting to ease after a brief increase, he said.

Overall semiconductor revenue followed the normal patterns in the first half of the year, said Joe Osha, senior analyst with Merrill Lynch, on a conference call Thursday. The month of June was a little weaker than usual, but it shouldn't be enough to affect most semiconductor companies, he said.

Lehman Brothers Holdings agreed, saying in a report released this week that it still expects Intel to record about $8.1 billion in revenue in the second quarter. In June, Intel said it expected to post between $8.0 billion and $8.2 billion in revenue in the second quarter.

However, Lehman said it is cutting its estimates for Intel's third-quarter results on expectations that PC demand might be less than anticipated at the start of the second half of the year. The delay of Intel's Grantsdale chipset launch might have helped to push sales of new PCs farther out into the third quarter, Lehman said.

The IDG News Service is a Network World affiliate.