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eMachines 2Q to fall short
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June 19, 2000: 3:17 p.m. ET
Consumer PC maker sees loss of as much as 33 cents per share
By Staff Writer Richard Richtmyer
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NEW YORK (CNNfn) - An oversupply of low-priced personal computers on retailers' shelves could bode well for consumers looking for a bargain this summer, but it was bad news on Wall Street Monday as investors dumped shares of discount PC maker eMachines.
eMachines, the third-leading seller of PCs through U.S. retailers, warned that its second-quarter operating loss will be between 30 cents and 33 cents per diluted share. The consensus estimate of analysts polled by earnings tracker First Call was for eMachines to turn in a loss of a penny per share for the quarter.
eMachines (EEEE: Research, Estimates) shares tumbled on the news, falling 15/16 to 2-3/4 in early afternoon Nasdaq trade, putting them at their lowest level since the company went public in late March.
 Executives of eMachines in Irvine, Calif., attributed the reduced forecast primarily to lower-than-expected demand for low-end PCs and a build-up of inventory among retailers.
"We believe that a significant accumulation of inventory on the part of our competitors and in the retail channel has occurred, resulting in significant discounting," Stephen A. Dukker, eMachines president and chief executive, told investors and analysts in a conference call Monday afternoon.
"We and our competitors must do what it takes to get rid of that inventory, and that is what's happening now," Dukker added.
Though the summer season is typically the PC industry's weakest - with the bulk of sales taking place during the holiday and back-to-school seasons - Dukker said retail PC sales appear to be particularly weak in the current quarter.
That weakness "has coincided with concerns about interest rates, the state of the economy, and the growing instability of the public securities markets," Dukker said. "We're seeing a fairly classic response to uncertainty in the economy and the curtailing of big-ticket purchases."
Looking ahead, Dukker said that he expects the inventory build-up to be resolved early in the third quarter, but warned that sales during that period could be "as much as 15 percent below what we've seen in terms of consensus expectations for the company," if consumer uncertainty persists.
"We expect that growth and demand will correlate to consumer confidence in the economy and stability of the public securities markets," Dukker added.
eMachines products sell for as little as $399 and include eTower, eView, and eOne models. Retail outlets such as Best Buy (BBY), Circuit City (CC) and Office Depot (ODP) carry the eMachines line, which is geared toward such functions as e-mail, word processing and accessing the Internet.
Of the 11 million personal computer sold in the U.S. during the first quarter of 2000, eMachines garnered 5 percent of the market share, according to figures compiled by technology research firm Dataquest. eMachines has sold more than 2.5 million computers since it was founded in 1998.
The company also is extending its reach beyond computer sales, using its customer base and customized software to generate revenue from online advertising. eMachines also provides its own Internet service, called e-machines.net, and bundles Internet service offers from other providers with most of its PCs.
In 1998, eMachines reported sales of $58.3 million, with a net loss of $2.8 million. 
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