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Street Talk: Microsofter
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December 13, 2000: 10:25 a.m. ET
Analysts cut software maker, Compaq and Dell for weakness in PC sales
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NEW YORK (CNNfn) - Trouble in the personal-computer industry hurt a number of big names in technology Wednesday, as analysts cut ratings, price targets and earnings estimates for Microsoft, Compaq and Dell.
Prudential Securities downgraded software maker Microsoft (MSFT: Research, Estimates) to "hold" from "accumulate" and set a price target on Microsoft shares of $55.
"We believe the demand environment for personal computers may be changing rapidly, in some still-unknown fashion, and that the result could prove negative for Microsoft," Prudential analyst Doug Cook said in a research note.
Prudential said it saw desktop and laptop computer sales either flat or declining in the near future, a trend that would hurt Microsoft.
"Microsoft has been counting on a resurgence of business PC growth for several quarters, and if notebook demand is deteriorating, we believe the hoped-for business PC resurgence may be further off than expected," Prudential said.
Prudential cut its fiscal second-quarter earnings estimate to 48 cents a share from 49 cents, its 2001 estimate to $1.89 from $1.91 and its 2002 estimate to $2.05 from $2.10.
Microsoft shares rose 88 cents to $59.25 early Wednesday.
Compaq
Bear Stearns cut its investment rating on Compaq (CPQ: Research, Estimates) to "neutral" from "attractive" after the world's No. 1 personal-computer maker warned its fourth-quarter earnings will miss analysts' forecasts.
"We have had a cautious stance on (the personal computer) group since September, but we are lowering our rating on Compaq for a different reason: its turnaround is faltering," Bear Stearns said in a research note.
Bear Stearns also cut its fourth-quarter earnings-per-share estimate to 28 cents from 37 cents and its 2001 estimate to $1.20 from $1.50.
SG Cowen analyst Richard Chu downgraded Compaq to "neutral" from "buy."
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Lehman Brothers cut its earnings estimates for Compaq, cutting its 2000 outlook to 96 cents a share from $1.05 and its 2001 estimate to $1.15 from $1.45.
ABN Amro analyst Bill Shope cut Compaq's fourth-quarter estimates to
28 cents a share from 34 cents and his 2001 estimates to $1.18 from $1.39. He reiterated his "hold" rating on the stock.
"Despite reduced expectations, we still believe that Compaq has an inefficient distribution model and will continue to face stiff competition in the UNIX and Windows server markets and enterprise storage space," Shope said in a research note.
Compaq shares closed at $20.77 Tuesday.
Dell
Chase Hambrecht & Quist said Dell Computer (DELL: Research, Estimates), the world's No. 2 personal computer maker, may be the next to issue a financial warning on its fourth-quarter results, joining several key rivals.
Chase analyst Walter Winnitzki said in a note to clients that business conditions had changed for the worse since Dell last provided financial guidance to analysts.
Winnitzki cut his fourth-quarter sales estimate by $450 million to $8.4 billion, representing growth of 24 percent year-to-year and sequential growth from the third quarter of only 2 percent.
He said that, with industry pricing pressures growing, he reduced his earnings-per-share forecast for the fourth quarter to 23 cents from 26 cents.
Winnitzki said the market may have already discounted an earnings miss into Dell's stock after warnings of lower results from Compaq, Gateway (GTW: Research, Estimates), Intel (INTC: Research, Estimates), Advanced Micro Devices (AMD: Research, Estimates) and Apple Computer (AAPL: Research, Estimates). He added that Dell faces greater exposure to the slow-growing desktop PC sector and challenges in the corporate equipment market, especially in Europe.
Eastman Kodak
Salomon Smith Barney cut its rating on Eastman Kodak (EK: Research, Estimates) to "neutral" from "outperform" largely due to uncertainty about the company's expected performance in the second half of 2001.
"While short-covering likely provided a gift today, the stock is nearing our price target, and expectations (especially for the second half of 2001) still leave us queasy," Salomon said in a research note.
Kodak held a forum to discuss its 2001 outlook Tuesday, and the meeting was "fairly negative" but in line with what the firm had anticipated, said Salomon.
Salomon had downgraded Kodak shares to "outperform" from "buy" in July and said it fears further downside to projections could exist down the road.
In early Wednesday trading, Kodak shares fell 81 cents to $40.25.
Akamai, Digex
Lehman Brothers initiated coverage of Akamai Technologies (AKAM: Research, Estimates) -- which helps Web sites manage graphic, video and sound elements -- with an "outperform" rating and a $55 price target.
"We believe that the company's EdgeAdvantage platform will emerge as the operating system for the Internet," Lehman said in a research note.
Lehman widened its 2000 loss estimate for Akamai to $2.10 a share from $2.09, but narrowed its 2001 loss estimate to $2.43 from $2.49.
Lehman also initiated coverage of Web-hosting company Digex (DIGX: Research, Estimates), giving it a "buy" rating and a $52 price target.
"Digex is the market leader in high-end managed hosting," Lehman said in a research note. "We believe the stock has been unfairly caught in the (Web-hosting) sector's downdraft given its market leadership and strong cash position."
Ace
ABN Amro initiated coverage of insurance company Ace (ACL: Research, Estimates) with a "buy" rating and a $55 price target.
"Ace is one of a few truly international companies with a diversified earnings stream," ABN Amro said in a research report.
 "We believe the company's global franchise is unparalleled in the insurance market and is virtually impossible to replicate," ABN Amro said.
It said it is projecting earnings-per-share growth of 46.7 percent to $2.45 per share this year, 14.2 percent to $2.80 in 2001, and 14.5 percent to $3.20 in 2002.
ACE's shares closed Tuesday at $42.
Chips
Salomon Smith Barney downgraded semiconductor-equipment company Applied Materials (AMAT: Research, Estimates) to "neutral" from "buy" as part of a wide downgrade of the sector.
Credit Suisse First Boston downgraded shares of chipmaker STMicroelectronics (STM: Research, Estimates) to "buy" from "strong buy" after the chipmaker and Atmel (ATML: Research, Estimates) announced they had settled a patent dispute and entered into a broad patent cross-license agreement. 
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