Unofficial earnings warnings. Plunging stock prices. Looming Y2K concerns. Welcome to the fickle world of PC stocks in 1999.

After years of leading the technology charge, PC makers are no longer the nimble growth engines of yore. January U.S. PC unit sales showed a 6% year-over-year gain but dropped 28% from December levels, according to

Merrill Lynch

analyst Steven Milunovich. And in the short term, with corporations applying the brakes on technology spending until the Y2K problem is sorted out, there is little good news to cheer investors.

Compaq

(CPQ)

, the Houston-based leading PC maker, started the spate of bad news last month when a company executive quietly whispered that sales for the first six weeks of its first quarter were weak. "It was an unofficial preannouncement," says Randy Befumo, an analyst at

Legg Mason Fund Adviser

. "Compaq quietly told a few analysts revenues would be $200 million light -- so the Street takes a few cents out of earnings and the company pretends everything is OK."

Now Compaq is expected to earn 33 cents a share when it reports in mid-April, down from expectations of 35 cents a share only three weeks ago, according to

First Call

.

Of course, Compaq is pretending that nothing unusual happened. Alan Hodel, media relations director, denies that the company said sales were weak in the first six weeks of the quarter. Since January, the stock has fallen from a high of 51 1/4 to around 30. (How's that for guidance?) Now two law firms have filed shareholder lawsuits in Texas federal court, alleging that Compaq selectively disclosed this slowdown in demand, thus allowing insiders the chance to sell stock at higher prices.

But it's not just Compaq. PC maker

Micron Electronics

(MUEI)

and PC distributor

Ingram Micro

(IM)

have both recently warned that they're not likely to meet earnings expectations.

But don't be too hasty about writing off the whole sector, says one observer. The industry's future will depend on its ability to feed the consumer-led demand for low-cost PCs as well as to cater to the corporate market, which ultimately will determine whether the industry "sinks or swims," said

PaineWebber

analyst Don Young in a note to clients.

"In the PC space, you have the haves and the have-nots right now, and

Dell

(DELL) - Get Report

,

Gateway

(GTW)

and even

Apple

(AAPL) - Get Report

are in the haves category," says Lou Mazzucchelli, an analyst at

Gerard Klauer & Mattison

. Compaq, he says, is in the have-not category because it's a bit distracted. In the same category is

Hewlett-Packard

(HWP)

, the No. 4 maker of PCs worldwide. (Gerard Klauer has buy ratings on Dell, Apple and Gateway and a hold rating on Compaq. The firm doesn't rate H-P.)

Compaq has been particularly emblematic of the industry's hot-and-cold start this year. Analysts loved the company's January proposal to spin off Internet search engine

AltaVista

, and the stock ran up to 51 by the end of the month. But after Compaq's fourth-quarter revenue failed to meet expectations, Patrick Manning, a money manager with

Perry Capital

, decided to sell his long position. "The price pressures are really negative for Compaq right now because the growth is in the low end, the $500 PC movement," says Manning. He points to how

Trigem

, a Korean company, has become a top-10 PC seller virtually overnight since it began selling its

eMachines

in December.

The winner of consumer-led PC growth seems to be Gateway, which has even convinced former

skeptic and

Piper Jaffray

analyst Ashok Kumar to sing the company's praises. "We believe the company is managing the March quarter to post a better-than-consensus number for the June quarter," he told clients Monday. Kumar, who now rates Gateway a strong buy, isn't the only one approving of Gateway's diversified strategy, which includes the leasing program

YourWare

and a rapidly expanding line of retail outlets called

Country Stores

.

"I see Gateway having 35% to 40% unit growth in the March quarter," says Legg Mason's Befum, who is also a researcher for two Legg Mason funds,

(LMVTX) - Get Report

Value Trust and

(LMASX) - Get Report

Special Investment Trust. One reason: Gateway has quietly pulled off a Dell-like management transition. Ten of the company's top 13 managers are new, he notes: "It has entirely refreshed its management team just like Dell did four years ago."

What about Dell? The No. 2 PC maker disappointed its legion of fans when its revenue stream came up $300 million

light in its second quarter ended Jan. 31. Now some analysts expect more bad news. "I wouldn't be surprised if it preannounced," says Manning, who adds that the company's recent across-the-board PC price cut can't help revenue growth. (Manning has no current positions in PC stocks.)

But Befumo, who visited Dell last week, says the company told him the booked orders were higher than they had been in some time.

And if corporate demand does pick up worldwide, then this early-year hiccup will look like the weak first quarter in 1996, adds Befumo. "After Compaq hit an air pocket in the first quarter of 1996, the company's

demand came right back in the second quarter," says the Legg Mason analyst.

In 1996, PC makers' revenue soon picked up steam after a shaky start to the year. Will this year also see a rise in revenue, or will the Y2K problem and the weak Asian economies take their toll? For Perry Capital's Manning, the good times have come and gone. "I wouldn't own any of these guys, especially during this time of the year," says Manning.