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Five analysts and top management from nine sector firms examine the computer hardware management sector in this special 47-page Computer Hardware issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info484.htm

TWST: What are two or three of your favorite stocks in the hardware group today?

Mr. Bailey: Our favorites for 2002 are Sun and Apple. The common theme between them is that they’re both at the beginning of significant upgrade cycles with their products. Over the past year, both companies have made dramatic enhancements to their products, and we think this will cause customers to upgrade to the new offerings as the year goes by. Clearly, neither one of these companies is immune to the economy, but the availability of new products that have significantly enhanced functionality and performance should, to a certain extent, drive demand.

TWST: Are there any stocks that you feel investors should keep their eye on that could prove to be a promising long term?

Mr. Bailey: We think that Network Appliance (Nasdaq:NTAP) has great potential, because of its technology, particularly the tight integration of the company’s filers and caching products. Going forward, we expect Network Appliance to enhance the functionality of its filers and caching products to enable companies to implement distributed storage without dramatically increasing their communications or administration costs. Network Appliance’s stock has had a relatively strong run as of late, so we would look for a more attractive entry point.

TWST: As we look out to 2002-2003, what are the greatest challenges facing the industry?

Mr. Bailey: Because corporate and US consumer PC penetration rates are so high, the biggest challenge for the PC companies is to excite their installed base and drive an upgrade cycle. Over the past couple of years, there has really been a dearth of new applications for WinTel PCs that would stress the hardware and cause users to replace their systems. Without new applications, the PC vendors must wait for older systems to become obsolete, which for a typical PC may take three to five years. On the other hand, Apple is attempting to entice users to move to new systems through its introduction of new hardware and software products that focus on digital audio and video and dovetail with increasing sales of DVD players, digital cameras and camcorders, and MP3 players. On the enterprise side, one of the major challenges that the vendors face is reducing the complexity and cost of managing and administering servers and storage. While the interoperability of server and storage hardware has come a long way, simplifying deployment, the manageability of these products through software products that can be easily integrated is still quite complex. We believe that management software will be an area of great growth over the next few years.

TWST: Are you anticipating any M&A or consolidation over the next 12-18 months?

Mr. Bailey: We would not expect any major mergers between hardware companies near term. We believe that larger companies will continue to acquire smaller companies, primarily for technology that completes a piece of the puzzle. Where we could see some acquisitions on a larger scale are in software and consulting services. Almost all the computer hardware companies would like to bolster their capabilities in those areas, and acquisitions could be one way for them to jumpstart those efforts.

This special issue includes:

1) Mainstream Computer Companies - In an in-depth (4,300 words) Analyst Interview, Andrew Neff, Senior Managing Director, Naveen Bobba, Associate Analyst, Ted Chung, Associate Analyst and William Hand, Associate Analyst, all respectly at Bear, Stearns & Co., examine the outlook for the sector including and share specific stock recommendations.

2)PC, Server & Storage Companies - In an in-depth (2,800 words) Analyst Interview, David C. Bailey, Vice President and Research Analyst with Gerard Klauer Mattison & Co., examines the outlook for the sector including and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of nine sector firms examine the outlook for their firm and the sector.