The odds are long that someone would buy Gateway.
They were probably a little behind the curve, but it's still early in the game. Compaq needed a partner for an ASP opportunity. They tried to address it on their own, but this is probably a more effective way to be doing it.
It's good for Compaq at the margin, because it helps them fill out their product line, and it is good for IBM at the margin because it helps them to sell storage.
Our expectation is that we are looking at upcoming good quarters for IBM.
As we have said before, the investor owns IBM for its consistent earnings and cash flow growth and relatively high degree of earnings predictability.
The extent of Apple's pre-announcement and the laundry list of problems that the company cited lead us to believe that its woes are as much company specific as they are industry related and the demand for products is just not there.
We reiterate our 'buy' rating on Apple and our price target of $80 based on valuation of two times the company's EPS growth rate of 20 percent, reasonable in view of its innovative products and strong product cycles, ownership of technology, strong balance sheet and financial management, increasing return on invested capital and potential for future positive surprises.
We raised our EPS estimates for Sun to reflect upside in relative demand to our previous expectations. Sun management indicated that demand trends were ahead of its expectations ... and that business halfway into the quarter was very strong across the board.
While we are very confident about the firm's underlying fundamentals ... Network Appliance's rich multiples require continued strong upside surprises and estimate increases, both of which are unlikely to happen near-term as the law of large numbers catches up with the company.