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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 were the key trends or issues affecting the group in 2001?

Mr. Bobba: For the enterprise hardware and data storage vendors as well as the PC vendors, the key issue, of course, was the economic demand slowdown and the resulting drop off in IT spending. The second issue relates to how each of the vendors responded to the slowdown. Clearly, there was a trend toward industry consolidation with Dell, advantaged by its business model in a demand environment characterized by component availability and declining component prices, gunning for market share and Hewlett-Packard trying to combine with Compaq. As the flagship vendors of the Internet infrastructure and as key beneficiaries of the technology spending boom in 1999 and 2000, Sun and EMC were hurt quite sharply by the downturn and saw sharp declines in revenues, profits and market capitalizations. The broader economic downturn also showed the strength and stability of IBM, which, benefiting from a healthy annuity-like revenue stream from its software and services businesses, has been weathering the downturn quite well. Exiting 2001, while IT spending conditions remained soft, the underlying themes of productivity and competitive benefits to firms from technology infrastructure and application rollout remain.

TWST: You have buy ratings on Sun (Nasdaq:SUNW) and Dell (Nasdaq:DELL). Would you explain the rationale behind Sun?

Mr. Bobba: The key reason for the sharp decline in business at Sun and the stock price was the falloff in demand from the vendors that drove a good portion of Sun’s growth in 1999 and 2000 such as the service providers, the telcos, and the dot-coms. Besides, the traditional enterprise markets too had remained very soft with companies delaying or canceling IT projects. Through the downturn, Sun’s competitive position has remained strong, the company now has a new and completely refreshed product line, and has responded to the downturn in the right fashion by reducing some costs and expenses and yet continuing to invest in R&D. Sun continues to have very strong R&D capabilities and investment roadmap and has a healthy balance sheet to ride the downturn. Now, Sun will be a leveraged play on the economic and IT spending recovery. Clearly, the key variable is the degree of economic recovery, and we see a strong recovery for Sun in the second half of 2002.

TWST: Are there any new interesting products that the computer hardware companies are putting out for 2002?

Mr. Bobba: I think we’ll see a lot of innovation in the data storage and storage networking areas. There are several startups working on a variety of innovative ideas and venture capital funding for these startups has continued quite strongly through the economic slowdown. Networked storage remains a key area for innovation with startups and existing vendors working on some very interesting ideas in storage hardware, management framework and tools, new protocols and interconnects such as iSCSI and InfiniBand, and storage networking equipment and components. While some of these startups are coming up with some interesting product ideas, it won’t be easy for them to build sustainable independent businesses and, consequently, it is likely that this space will see quite a few acquisitions. So in 2002 and 2003, we’ll see a lot of interesting new products show up in the data storage and storage networking areas.

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 respectively 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.