Computer sales may surge after Microsoft releases a new version of Windows next year, but don't count on a run like the industry saw in the last decade.
PHOENIX — Computer sales may surge after Microsoft releases a new version of Windows next year, but don’t count on a run like the industry saw in the last decade, Dell Chief Executive Kevin Rollins said at an investment conference yesterday.
“There could be a slight surge but I don’t think it’s going to return to the type that we saw in the late ’90s,” Rollins said at the Goldman Sachs Technology Symposium.
Rollins said the PC market is healthy and growing but at a steadier pace. Companies are buying PCs again but they’re not as likely to replace them every three years or whenever Microsoft releases a product like Longhorn, the code-name for the new operating system that’s due in 2006.
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“Therefore we don’t think we’ll see the boom-or-bust cycle we used to see from a new processor from Intel or a new operating system from Microsoft,” he said.
But consumers may still be drawn to the new products. Rollins predicted a consumer PC buying cycle will begin in a year or two, driven in part by Longhorn, Intel’s new dual-core processors and the spread of digital media.
Rollins’ PC outlook was somewhat reflected in the longer-term investment strategy that Goldman Sachs provided to its clients this month: With the U.S. economy projected to expand, the firm advised clients to focus on industries and companies that expect strong growth in 2006.
Information technology is one sector that’s expected to benefit from the economic expansion, and nearly every major tech company was pitching its stock at the conference. But industrial stocks, energy and materials sectors are also well-positioned, according to the firm.
Microsoft fits the model. Its sales are expected to pick up next year when it releases Longhorn and a new productivity suite known internally as Office 12. But investors aren’t biting yet. So far this year, the stock is down about 2 percent, even after the company announced last week that it’s preparing to enter the hot security-software business.
Representing Microsoft at the conference was Chris Caposella, a Microsoft vice president in the group that produces Office. He said the company will continue trying to broaden the market for Office beyond “knowledge workers” but he declined to say what new features will be added.
Caposella said business customers will be “surprised” by how much the software integrates PCs with other systems on their networks and with services offered over the Web.
“We do think that success for us, particularly in the enterprise space, around Longhorn, around Office 12, is very much about being able to connect the desktop to these back-end systems,” he said.
Goldman Sachs software analyst Rick Sherlund expects more than a slight surge in PC sales when Microsoft’s new products go on sale next year. He predicts “a big replacement cycle around Longhorn and the new version of Office as well.”
Meanwhile, a lot of investors are moving away from large tech companies such as Microsoft, he said.
“The stock has been sort of water torture lately, the way it’s been dripping down, but there’s been no bad news,” he said. “I think it reflects reshuffling of portfolios, to energy and other sectors.”
Sherlund expects investors will come back to Microsoft — and the stock will pick up — later this year when test versions of Longhorn and Office 12 are released, along with the next version of its Xbox game console.
“I think later this year the stock starts getting traction as you see the products emerge on the horizon,” he said.
“As long as PC demand holds up reasonably well in the meantime — which so far it’s done a pretty good job — that pays the rent for the next year and a half, two years.”
Goldman Sachs, which also does investment banking for Microsoft, didn’t convince some institutional investors at its conference.
Martin Brooke of Druidale Securities in London listened to only part of Caposella’s presentation. Afterward, smoking a pipe outside in the Arizona sun, he pored through the Goldman Sachs list of suggested investments.
“It’s much more difficult than it used to be,” he said. “There just aren’t the undiscovered companies.”
What about Microsoft? “I think it’s probably going to remain rather flat,” he said.
Brier Dudley: 206-515-5687 or firstname.lastname@example.org