Personal computer sales are looking better -- but that won't be much help to contract manufacturers unless someone puts a stop to the bloody PC price war.
In particular, warns Deutsche Bank analyst Chris Whitmore, the scramble by
(DELL - Get Report) to gain market share by selling boxes for even less, and the stabilization of component prices are likely to increase pricing pressure on
(SANM - Get Report) and smaller vendors, despite
(HPQ - Get Report)
Throwing a bit of cold water on last week's mini rally by the electronic manufacturing sector (EMS) -- shares of contract manufacturers increased by an average of 13% -- Whitmore said the fundamentals don't justify the valuations: "At 55 times CY04 EPS we believe EMS shares are already discounting a major snapback in 2H-03 and 2004 earnings and leave little room
Similarly, Jim Savage of Wells Fargo Securities called PC pricing "irrational" last week in a note downgrading Sanmina-SCI to hold from buy on valuation concerns.The worries over continued price-cutting come as the PC market shows some signs of regaining at least a bit of its lost vigor. Sales in the second-calendar quarter were stronger than expected, prompting market researchers Gartner and IDC to lift PC