Gearing Down for a Computer Comeback --- Modest Upturn Is Seen On Cost-Cutting Drive
The computer industry, considerably leaner a year after its worst slump, appears poised for a modest comeback.</br></br>But unlike past rebounds in the highly volatile business, this one promises to be uneven and prompted mostly by cost cutting instead of rejuvenated sales. Gone, for now at least, are the huge annual sales increases that led many companies to overbuild capacity amid expectations of continued heavy growth. And while some major players -- including Digital Equipment Corp., NCR Corp. and Apple Computer Inc. -- are reporting improved earnings and others are predicting them for later this year, the salad days are over.</br></br>Last year's blood bath led to fundamental changes that will be reflected in some balance sheets. Thousands of workers were fired, plants were closed and inventories were slashed. The result: The computer makers that made these adjustments will be better able to show a profit even if sales grow slowly -- or not at all.</br></br>This reliance on profit margins instead of growth could prove crucial in 1986. Some analysts see an increase in computer sales between 7% and 13% from 1985, but that is a far cry from 1984's roughly 20% gain from 1983. The sales gain in 1985, the industry's darkest days thus far, has been variously estimated at 3% to 10%. Although improved margins should boost profits, some analysts argue that a sustained industrywide recovery won't occur without a significant upturn in sales.</br></br>"The recession in electronics in 1984 and 1985 was self-induced, not economy-induced," says Mark Boyer, the portfolio manager of Fidelity Investments' nearly $500 million high-technology fund. Mr. Boyer, like many other analysts, notes that the industry's downturn came when the U.S. economy otherwise was robust. The culprit, analysts agree, was the industry's own bad planning and overcapacity.