Hardware Companies Blame Slow Q4 on Y2K

FRAMINGHAM (01/28/2000) - The year 2000 date rollover occurred without earthshaking events, but millennium-bug concerns and the Taiwan earthquake put a kink in the year-end earnings of desktop and portable PC makers.

Analysts said the last quarter of the year usually shows strong earnings, and the first quarter is typically flat. That profile doesn't seem to apply to 1999, analysts said, citing Dell Computer Corp.'s announcement last week that it will report lower-than-expected earnings and revenue for the quarter ended Dec. 28.

The Round Rock, Texas-based company attributed its reduced expectations to late-year chip shortages, a result of last fall's earthquake in Taiwan, and fear of Y2K problems. Dell said Y2K paranoia resulted in $500 million in lost sales.

Dell's announcement came shortly after San Jose-based Dataquest reported that global PC sales were 2% slower than expected, growing 22% in the fourth quarter, because of the Y2K issue.

Jim Feldhan, president and co-founder of Semico Research Corp. in Phoenix, said the Y2K slowdown is a valid reason for slack fourth-quarter results among companies that sell heavily to the corporate sector. Analyst Anne Bui at International Data Corp. in Framingham, Mass., said firms grossly overestimated the corporate spending potential for the end of the year, making the consumer market the saving grace.

According to analyst Mike Fiebus at Mercury Research in Scottsdale, Ariz., Dell may have been hit especially hard by the convergence of Y2K fears and problems with its sole microprocessor supplier, Intel Corp.

Dell CEO Michael Dell last week said Intel is the company's only processor supplier and that relationship isn't likely to change.

Two weeks ago, IBM announced weak earnings, blaming Y2K-related corporate slowdowns for a slack fourth quarter. Earnings fell 4% and profits dropped 11%, compared with a year earlier.

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