PC outlook: Happy days are here to stay.

The financial results reported this past week by a host of computer companies yielded some of the year's earliest and most concrete indications where the information technology industry is headed. The direction: Not up, but not down either. And in this case, sideways is good--very good.

Analysts say that, while revenues may generally be flat, the second quarter should be a bang-up one as well, with strong year-over-year growth continuing.

Three big bellwether companies served as the foundation for the positive outlook. Intel Corp. and Microsoft Corp. reported earnings this week that exceeded expectations, bringing in a cool $3 billion in net income between them. Mid-week, Compaq Computer Corp. scored a bulls eye, reporting results just about dead on with Wall Street's expectations

Mark Specker, an analyst with SoundView Financial Group of Stamford, Conn., predicted that a recent round of price cutting by Compaq would drive up unit sales, which benefits both Intel and Microsoft considerably. "The net result in demand should look pretty decent," he said.

In fact, a SoundView survey found far fewer users planning to delay spending on new computers compared to last year, when they were trying to make up their minds about Windows 95.

Companies are continuing to upgrade their PCs to Pentium Pro machines, and are continuing to install Windows NT on those machines, said Matt Sargent, analyst at Computer Intelligence InfoCorp in La Jolla, Calif. "Compared to last year, growth should be strong," he said. "NT and the Pentium Pro are behind this. There's a movement among smaller corporations to drive purchasing."

Kevin Hause, an analyst at International Data Corp. in Mountain View, Calif. is predicting that the second quarter will be flat to slightly down from the first quarter, but should still see growth in the mid-teens compared to last year.

"We're not mid-20 percent growth any more. We're stabilized at the mid-teens, which is still healthy," he said. "It's growth that most industries would die for."

And guidance from Intel, Microsoft and Compaq backs up IDC's and CI's predictions. In their post-earnings communications, Intel and Microsoft warned against getting too exuberant about the second quarter. But analysts were taking the advice with a grain of salt. Microsoft is notorious for under-predicting results so it can report a pleasant surprise.

Both companies predicted revenue for the second quarter to be flat to slightly higher in the second quarter--all of which would still represent significant year-over-year growth. "[Intel] indicated the PC market still remains very healthy, and they see strong international demand," said Greg Mischou, an analyst at Alex Brown & Sons in San Francisco. "We believe the commercial segment is strong, driven by NT sales, and there was good sell-through at retail levels for MMX systems."

And several analysts pointed out that any concerns they had about revenues or margins in the second quarter stemmed from issues specific to a company, not major market trends. Intel, for example, faces pressure on the expense side from manufacturing costs related to new .25 micron fabs. Its margins are expected to decrease somewhat also as it begins the transition to Pentium II.

Compaq's margins could be affected by its increasingly aggressive pricing, but analysts pointed out that in the end, that may fuel more sales. "The PC makers might get a little hurt, but the people who supply them will benefit," Sargent said.