Sector Overlook: Computer Hardware

Analyst estimate the unit sales of personal computers in 2007 will grow 10-12%, partly due to the release of Microsoft’s MSFT new operating system Microsoft Vista. Vista sales in the first 2 months of release were better than expected.

Long-term fundamentals in the computer industry looks attractive, thanks to a global appetite for technology products, which should boost productivity and communications. Add to that global competition, which would force companies to be more productive. Many vendors have also streamlined operations during the industry’s downturn, thus boosting their longer-term profit potential.

Emerging Markets
The economy of emerging markets is growing rapidly and so it their purchasing power. Analyst believe with high purchasing power, more people in emerging markets will buy personal computers, therefore increasing their demand. Markets in Asia, Eastern Europe, Latin America are the ones to see the fastest growth. This ever-growing demand will boost computer hardware vendor’s sales and profits. Many computer hardware vendors have also taken costs out of their infrastructures over the past few years, and profitability should benefit from lower component costs as a result of rapidly falling DRAM prices and a price war between Intel and AMD. All this favors the computer hardware industry and which looks in good shape to outperform other sectors.

Benefits of Internet-related Computing
The benefits of internet-related computing for the computer industry is well underway. Demand for internet-based applications is growing because this offers companies opportunities to reduce costs and improve customer service. Although some initial deployments have been made to capitalize on this opportunity, the evolution of the platforms could produce another wave of investment as internet use matures. For example, the growing complexity of computing infrastructures should lead to investments in hardware that have self-management features and eventually on-demand or automated computing. In addition, as price pressures in the PC industry have remained intense, the hardware vendors have been seeking to offset the negative impact on profits by offering higher-margin services, servers and storage.

S&P Computer Hardware Index
In 2007, the S&P Computer Hardware Index rose 7.6%, outperforming the S&P 1500, which increased 6.6% during the same period. In 2006, the Hardware Index exceeded the 1500 with an increase of 17.3%, compared with a 13.3% pickup for the broader market.

Keep An Eye
Few companies that fall in this sector are

IBM – International Business Machines Corporation (IBM) engages in the development and manufacture of the advanced information technologies, including computer systems, software, storage systems, and microelectronics.

HPQ – Hewlett-Packard Company provides various products, technologies, software, solutions, and services to consumers, businesses, and governments worldwide.

DELL – Dell, Inc. and its subsidiaries engage in the design, development, manufacture, marketing, sale, and support of various computer systems and services to customers worldwide.

CSCO – Cisco Systems, Inc. designs, manufactures, and sells IP-based networking and other products relating to the communications and information technology industry worldwide.

SMCI – Super Micro Computer, Inc. designs, develops, manufactures, and sells application optimized, server solutions based on a modular and open-standard architecture.

EMC – EMC Corporation engages in the development, delivery, and support of information infrastructure technologies and solutions worldwide.

Conclusion: Overall analyst believe the fundamental outlook for the Computer Hardware sub-industry is positive.

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