Merrill Lynch is upbeat about personal computer hardware firms, suggesting that Gateway and Dell are an attractive buy and shareholders with Compaq stock should look for more.

It believes these companies will report financial results for the next quarter in line with expectations with further appreciation possible towards the strong December quarter.

Merrill Lynch says the demand for PCs has held up reasonably well in the third quarter. Indeed, corporate and consumer demand in the United States appeared to gain strength as the quarter unfolded.

In Europe, demand continued to languish as was largely expected, but some improvement is forecast later this year. Merrill Lynch says prices for memory and components in general were more favourable in the quarter than had been expected and should help the PC vendors meet or exceed gross margin expectations.