Are PC sales slowing down?

Compaq Computer Corp. warned of lower-than-expected demand for its personal computers, compounding concerns by some analysts that growth in the $174 billion world-wide PC market may be nearing an end.

The world's largest PC maker said sales for the quarter ending March 31 were running below its projections because of weakness in North America and Europe, which accounts for the bulk of PC sales. "In January, our sales were lower than we expected and it spilled over into the first week of February," said Enrico Pesatori, Compaq's senior vice president for corporate marketing. "We can't pinpoint it to anything special," he said.

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Compaq (NYSE: CPQ), of Houston, said sales to small and medium-size businesses were weaker. Mr. Pesatori said sales to large corporate buyers and home-PC customers were within the company's expectations, and Compaq doesn't believe the softness represents losses to rivals. "We see some weakness in general in the market" in the two regions, he said. Compaq has moved to reduce spending as a result of the slowing demand, Mr. Pesatori said.

Gateway Inc. President Jeffrey Weitzen said the North Sioux City, S.D., company has also experienced what he called a seasonal slowing. "We've been seeing relatively seasonal behavior. January was a strong month and, as is traditionally the case, February got a little lighter."

Some analysts say signs of slowing growth amid falling prices may signal the industry's growth era is winding down. "What I'm saying is 'sorry guys, the party's over.'" said International Data Corp. senior analyst Roger Kay. "We're within sight of the revenue peak in the consumer-PC market and not many years away from the peak of revenue in the commercial market," he said. In fact, because of rapid price declines in home-PCs, "It's possible the revenue peak is already behind us" in consumer sales, added Mr. Kay.

A January poll of 13,500 technology firms by researcher Ziff Davis Market Intelligence, La Jolla, Calif., found that new computer purchases by small businesses fell 8% in January compared with the year-earlier period.

The same poll showed an increase in sales to medium and large businesses that brought total unit sales up 3%. However, price declines likely will produce lower overall revenue, theorized Aaron Goldberg, vice president at Ziff Davis.

PaineWebber Inc. analyst Don Young said he believes demand this quarter is running at half the 17% unit increase that he had been expecting. "We're picking up signs in many different avenues of weak PC demand," he said. Sales disappointments among computer distributors are pushing up their inventories of unsold computers to 40 days of sales from 34 in the previous quarter, he said.

Compaq's warning, coming days after Gateway's caution and a revenue shortfall at Dell Computer Inc., triggered a broad sell-off in PC-company shares. Compaq shares closed down 14%, or $5.625, at $35.375 in New York Stock Exchange composite trading Friday while Gateway fell 9%, or $7.4375, to $72.6875, also in trading on the Big Board. Intel Corp., which makes the key microprocessor chips used in most PCs, tumbled 6%, or $7.8125, to $119.9375 in Nasdaq Stock Market trading.