Credit Suisse First Boston analyst Robert Semple noted that a report from the Department of Commerce showed that order growth for computers and related products slowed significantly in September.
Semple said in a research report that new orders of $8.2 billion for PCs, storage devices, terminals, and peripherals, increased 6% from September 2004; previously, "the slowest growth recorded by any month in 2005 was 24% in July." For the year so far, new orders for computers and related products are up 28% from the same period a year ago, "but this represents a marked deceleration from the 34% growth reported in both the first quarter and second quarter."
There could be a "difficult" fourth quarter ahead for the sector. "While industry-wide double-digit unit growth is usually nothing to scoff at, it is clear that the PC market's unit progress is being almost completely offset by price declines, particularly in notebooks, and a secular shift to the low end of the market owing to the robust growth in emerging markets including China, India, and Latin America," Semple said. "Further exacerbating the situation is the less-than-favorable component price environment, which makes it more difficult for U.S. OEMs to respond to aggressive pricing while also maintaining margins."
The analyst said the dynamics will remain in place throughout most of the fourth quarter "before components prices finally abate."
"Until then, we expect Dell and Hewlett-Packard to favor profitability over revenue growth, which helps to explain why both are only growing slightly above the rate of the market recently," Semple said.
"In an environment with aggressive pricing and tight component prices, we believe investors should own the companies that are profitably gaining share and have some semblance of price protection, namely Apple Computer," Semple said, noting that the company is his top pick in his coverage universe.
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