; M.S. in electrical engineering,
. Niles joined Lehman this year and covers computer hardware and semiconductors. Prior to that he worked at
for 10 years and before that was an engineer at
Industry Outlook and Style
Despite sluggish PC demand over the past year, Niles is seeing signs of an improvement. He explains that Y2K compliance issues pulled PC demand that would have traditionally appeared in the third and fourth quarters of 1999 into the first and second quarters of that year. This was followed by a "hangover" effect in the first two quarters of 2000. In addition,
was launched in February of this year and he believes corporations are taking time to evaluate it, delaying purchasing until they're ready to deploy it. As he summarizes, "Y2K hurt us in the back half of last year; Win2K should help us in the back half of this year."
Niles also cites PC pricing being minimally down and stabilizing as an additional factor. He sees the trend of companies offering free PCs, rebates or deep discounts ending because it created what he calls the Yugo effect: Initially there's lots of excitement over getting a big-ticket item for cheap or free, but soon people realize that you get what you pay for. Consumers want to be able to download and use programs with sophisticated graphics, video and sound, all of which demand a powerful computer, and many cheap and free PCs don't fit the bill. By the fourth quarter he predicts an increase in demand in both the consumer and corporate markets, the latter being fueled more by Windows 2000 ramping up.
Niles tends to favor companies that have large corporate exposure because he sees this product cycle as being more driven by companies than consumers. Therefore, he favors
(Lehman is a market maker in these securities) over
. "Windows 2000 is really going to be an event that matters and Dell (with 15% global server market share) and Compaq (30% global server market share) should benefit more than anyone else in the PC industry." Semiconductor firms such as
should benefit as well (Niles is ranked number two in semiconductors). Niles also likes smaller-cap company
. "If they get their Web-hosting spun out successfully and business keeps improving, MUEI could be a sleeper."
Favorite stock for next 12 months:
Comment: "With over 30% global market share in X86 servers, when Windows 2000 happens Compaq should benefit almost more than anyone else. The combination of a number of other factors, too, like the potential for tremendous multiple expansion, combined with rebuilding credibility, combined with the potential to really significantly beat estimates makes that my best pick between now and year-end."
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