Intel, Windows 95 aside, computer outlook bright

As 1995 begins, the computer industry offers convincing evidence that nobody's perfect and everybody wants to be hip.

Intel Corp. is belatedly spending $200 million on the first-ever consumer recall of a computer microprocessor, the Pentium chip. Meanwhile, Microsoft Corp. merits a procrastinator award for a second delay (until August) of its much-publicized Windows 95 software program. It claims there are no real problems and the delay wasn't prompted by the Intel debacle.


Television commercials for some straight-laced computer companies lately have become more desperately "Generation X" in nature than ads for blue jeans or corn chips.

For example, Digital Equipment Corp. blares rock music over psychedelic backgrounds featuring short-burst messages, such as the fact its embattled business recently outscored "the Grim Reaper." International Business Machines Corp. promotes new products with candid shots of young computer users who mumble phrases such as "far out." It employs wisecracking TV comedian Paul Reiser in other commercials.


These are desperate times, but good times, too. Coming off a strong -- if somewhat uneven -- year for computer, semiconductor and software companies that was boosted by consumer demand, this volatile industry's stocks should provide investors with generally good results.

"If an investor is thinking about making an investment in computer stocks today and is willing to leave it the entire 12 months, 1995 will be a very strong year," predicted Liz Buyer, analyst with the T. Rowe Price Technology Fund.

Once hubbub about the recalled Pentium chip passes, she believes, there'll be a dramatic rise in the computer hardware sales cycle. Similarly, the debut of Windows 95 that makes computer use easier should trigger a move to upgrade software.

"While the computer group gained 20 percent in value last year, in 1995 you'll find fewer companies tripling and quadrupling their prices," said Kevin McCarthy, analyst with NatWest Securities.

Investor expectations already factor in a continuation of good news, he believes, meaning future rewards will be less and any negative news will carry greater weight.

"There couldn't be a more exciting period, but you never know how long it takes things to move from being possible to being practical," added Nick Moore, software/networking analyst with Franklin Advisors and co-manager of Franklin California Growth Fund.

Investors should have 15 percent to 20 percent of portfolios in diversified computer and computer-related stocks, suggested Martin Ressinger, analyst with Duff & Phelps.

Many computer stocks have done well, but still not as well as their earnings indicate, he said.


Intel and Microsoft are dominant competitors that will survive recent setbacks. Intel stock is recommended by Ms. Buyer and Mr. Ressinger and rated hold by Mr. McCarthy. Microsoft gets a buy rating from Ms. Buyer and Mr. Ressinger, while Mr. McCarthy and Mr. Moore consider it a hold.

Mr. Ressinger recommends selling IBM (which is also the company that prompted the Pentium recall by refusing to ship computers containing that error-prone Intel chip), while Mr. Moore rates it a hold. Prospects are questionable as it emphasizes personal computers.

Digital Equipment, its proprietary systems business on the way out, is a stock to sell, in Mr. Ressinger's opinion. Mr. Moore deems it speculative because of its difficult changeover to networking and PCs.

Elsewhere, Hewlett-Packard is recommended by Mr. Ressinger and Mr. Moore, while Mr. McCarthy rates it hold. Sun Microsystems is a pick of Mr. Moore and Mr. Ressinger.

Apple Computer is controversial. Mr. Ressinger would sell it and Ms. Buyer would purchase it, while Mr. Moore acknowledges that the company is hurting because stores don't carry enough Macintosh software.

Compaq Computer and software firm Parametric Technology are Mr. McCarthy's suggestions, while Tandem Computers is the choice of Mr. Ressinger. Oracle Systems and Sybase Inc. are favorites of Mr. Moore. Adobe Systems and Autodesk Inc. are recommended by Ms. Buyer.