The future of technology is now, and it's a mess.
Massive layoffs, drastic reorganizations and severe product price cuts characterize the computer industry in 1993.
Trusted firms such as IBM and Apple Computer, which were supposed to lead average Americans into the technological era, are malfunctioning just when they're needed most. Stocks of both have been placed on the sell lists of many investment firms.
Even the stock of software giant Microsoft Corp. took a tumble when the company said price competition will keep profits from matching its historically high growth rates.
No wonder stock investors are perplexed. One quarter's favorite may be the next quarter's disaster, and long-term reputations seem to matter little.
"Personally, based on the volatility we're seeing, I'd avoid the computer industry stocks and instead go buy the computer products," counseled Martin Ressinger, analyst with the Duff & Phelps investment research firm, noting that industrywide cuts have dramatically lowered prices of hardware and software.
Don't expect much to settle down soon, especially since the economy isn't providing assistance.
"We're in the midst of a classic historic shakeout in the computer industry, with major cracks in the surface at IBM, Apple and others," observed Stephen McClellan, analyst with Merrill Lynch & Co.
Some of the very weakest firms will likely disappear.
"Be wary of any public computer company selling for less than $5 a share, for it is suspect and the stock market is telling you that," warned Mark Jordan, analyst with A. G. Edwards & Sons. "Many firms have cash and staying power for only a period of time, and, at some point, they're going to have to start making money again or they're in trouble."
On the other hand, product pricing has gone so low that it may not fall much more.
"I don't expect the average industrywide price of a personal computer to drop significantly from this point, though you will get better products with improved technology for current prices," predicted Marianne Wolk, analyst with Prudential Securities.
For the investor, it's time to make decisions. Some stocks must ** be sold, while others should be held but monitored carefully. And, believe it or not, there are some worth buying because their price is right, so long as you can live with volatility.
Sell IBM, counseled Jordan, who believes Big Blue is doing "the 'the right thing' with its restructuring, but nonetheless faces a difficult transition from a company with generous profit margins to one with considerably lower profit margins. The company plans to cut 35,000 jobs, finance early retirement for 25,000 more and get rid of many factories and office buildings.
Less negative are Wolk and Ressinger, who rate IBM a hold, primarily because new Chairman Louis Gerstner Jr. is a proven cost-cutter who acts quickly. IBM also recently entered the low-cost personal computer market with the launch of independent subsidiary Ambra Computer.
Sell Apple Computer, advised Wolk and McClellan, who expect that several more rounds of product price cuts besides those recently announced will make it difficult to generate much revenue growth this year.
Jordan, however, notes that Apple has performed rather well in reported earnings the past 18 months, so he rates it a hold. Its long-awaited hand-held Newton Message Pad computer-communicator, while perhaps not living up to all the hype generated by the company, does hold promise.
Compaq Computer, the best-positioned PC company in the industry that has emerged as a leader and price-setter, is a stock worth buying, said Wolk.
Buy shares of Intel Corp. because its microprocessors will continue to dominate the desktop market and Advanced Micro Devices because it has successfully cloned Intel's chips, said Ressinger. Buy Texas Instruments even though its price has increased, he added.
Buy shares of Microsoft because it's still the "juggernaut" of software and Adobe Systems because of its specialized software niche in publishing and printing, said McClellan. His other picks are Oracle Systems, Computer Associates, BMC Software, Computer Sciences and General Motors Class "E."