PC Recovery Likely Delayed

The impact of the events of Sept. 11 on the computer industry and its previously forecasted recovery early next year are beginning
to come into focus, and Goldman Sachs & Co. suggested Wednesday that it will now likely be late in 2002 before the recovery appears.

“Following the events of Sept. 11, it seems likely that the PC demand recovery will be postponed and the near-term impact of Windows
XP diluted,” GS semiconductor analyst Terry Ragsdale wrote Wednesday.

The server side too, is expected to take a hit.

“We are just now beginning to size the probable magnitude of impact for the combination of an already weak economy coupled with the
events of Sept. 11,” said GS analyst Laura Conigliaro, who lowered her estimates on EMC Corp. , IBM Corp. and Sun Microsystems Wednesday. “The timing and location of the WTC crash has put enormous pressure on
the closing process are raised new questions in the minds of corporate users about near-term spending levels.”

But Ragsdale maintains that the PC side of the sector is still likely to feel the results most keenly.

“Last week, we noted that the biggest change in our sector view post-September 11 is on the PC side, where the confidence hit is
likely to be felt most severely,” he said. “PCs are among the most easily deferred technology/electronics purchases for both
consumers and corporations.”

GS PC analyst Joe Moore apparently agreed. He cut global PC unit growth assumptions Wednesday, forecasting unit growth will be down
7 percent in 2001 from a previously predicted 5 percent. Moore also said unit growth is only expected to rise 8 percent in 2002 as
opposed to the previous prediction of 10 to 12 percent growth.

Ragsdale noted that such projections are “moving targets,” but also said the “direction is clear,” and cut earnings estimates for
Intel Corp. , a bellwether for the PC industry and a company his group put on GS’ Recommended List barely six
weeks ago.

“Most of what we hear from PC industry participants about the September 11 impact can be summarized as ‘we don’t know,'” Ragsdale
said. “But this week, we have picked up some admissions that near-term business is weakening. The supply chain is suggesting that
there have been few cancellations, but incoming orders have slowed.”

He also said Asian PC component suppliers and contractors were already worried that sell-through in the fourth quarter of 2001 would
be weak, with seasonal trends peaking early, in October, then falling off. “Now, there’s reason for an even earlier peak,” he said.

However, Ragsdale did not downgrade Intel, though he did say the stock is now his group’s least favorite Recommended List name.

“It’s humbling to seriously consider downgrading a stock that we upgraded only six weeks ago,” he said. “Although we are keeping the
RL rating on Intel, it’s not an easy call. On the negative side, our guess is that a measurable PC recovery may now be postponed to
3Q/02. Sell-through for 4Q/01 is very questionable, and seasonality hurts the story in the first half of 2002.”

But he also found some positive factors in the mix, including the company’s accelerated Pentium 4 ramp, which he said is fixing the
competitive problems the company had with Advanced Micro Devices Inc. beginning in the second half of 2000.
Ragsdale said that should lead to market share gains in the third quarter of 2001. Also, he suggested that investors have taken an
excessively dismal view of both the PC market’s and Intel’s growth prospects in the medium term.

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