With the announced delay of Microsoft’s Vista operating system, semiconductor industry analysts are painting a bleak picture of negative impact for 2006.
Microsoft announced recently that it would push back the release of Vista for consumers to January 2007 from its earlier target of the second half of this year, missing the crucial holiday shopping season. Microsoft plans to roll out its consumer beta release of 2 million units in October and will release the business version a month later.
Research from Wall Street watchers at Lehman Brothers indicates that PC demand will be subdued in Q4, given that the catalyst for consumer purchases has been moved to Q1 2007. Lehman Brothers earlier this week reduced its 2006 PC forecast from 226.3 million units to 220.9 million units and reduced its estimates for the PC industry’s 12 percent year-on-year unit growth to 9.8 percent, due partially “to concerns over Vista.”
“We believe that this is likely to adversely impact sentiment towards semi vendors with exposure to PCs in the absence of what would have been a potentially significant catalyst for PC holiday consumer sales,” said Harry Blount, senior VP of enterprise hardware at Lehman Brothers, in a research note. Lehman Brothers expects a more moderate impact on the corporate market from Vista as enterprise buying patterns appear less likely to be impacted by the operating system.
Several companies’ consumer sales will be affected by Vista’s delay. Lehman Brothers predicts an industry-wide deferral of PC purchases by consumers in the range of 10 percent to 20 percent as buyers wait for Vista’s January release.
Further, Tim Luke, managing director and global sector head of technology equity research at Lehman Brothers, approximated that in the consumer market Intel represents around 25 percent to 30 percent of sales. Holding his 2006 estimates, the analyst expects to trim second half 2007 estimates for Intel from 8 percent growth to 7 percent growth, thanks to the delay. The firm now predicts Intel EPS for 2006 will decrease from $1.03 to $1.01 and EPS for calendar year 2007 to drop 2 cents from $1.29 to $1.27.
On the PC OEM front, Lehman Brothers also predicted Dell would see EPS for Q4 to drop in the range of a fraction of a cent to 2 cents. Hewlett-Packard is expected to see a less than a cent drop in EPS, but could be more susceptible to the delay than Dell due to “higher exposure to consumer PCs and longer lead time between the point of manufacture and the time of sale in the retail channel,” according to Blount.
With the expected 10 percent to 20 percent consumer purchase deferral, Lehman Brothers predicts the impact to amount to approximately 2.5 million to 6 million units in Q4 of this year. Dell and HP account for approximately 17 percent and 16 percent of PC unit shipments, respectively. This represents a potential deferral of 400,000 to 1 million units for each company. “At an average selling price of $915, this suggests a potential revenue shortfall of $350 million to $1 billion for each company,” said Blount.
But Lehman Brothers sees a silver lining for the PC market. “While the delay may cause some investor heartburn between now and the end of 2006, we would be inclined to use any weakness as a buying opportunity,” Blount concluded.
(Jennifer Prestigiacomo)
