Hi El .... About Kumar Comments
>>>As far as I'm concerned, the failure of the 3 Stooges
to come forward here, with the stock at a 52 week low and
with WS totally negative, only tells me that that Kumar
is correct.<<<
I don't think Kumar is correct, let me go through the
whole story. The stock was sitting peacefully around
$24 when Kumar decided to get his name in the news and
maybe a couple of interviews. His main point is that
CPQ has excess inventory and a lot of obsolete products
in the channel that they are having a fire sale to clean
the channel and there is a better than 50/50 chance that
they will end up with a loss of about $.10 EPS for Q2
(note that he also contradicts himself and estimates
$.03 EPS for Q2). Of course the stock got hit and we
have a minor new 52wks low, but IMO the hit is less than
expected considering the dissmal news. However, all other
published info indicates that is not true. Here they are:
*********
1. Several posts (a wk or two ago) by hlpnout about var
surveys show that cpq inventory levels are normal for
PC's and low for laptops.
*********
2. Compaq said during the announcement of their new
distribution policy (reduction of resellers from 40
to 4) that their inventory is 3-4 wks and about 5%
of that is slow moving. Let's translate that into
numbers, we know that they sold about 3.35M PC's in
Q1 at an average price of about $1200. Then, 5% of
4 wks inventory would be:
.05x3.35Mx$1200x(4 wks/13 wks per Q) = 62M
Note that the estimated 62M above is conservative because
CPQ was addressing the US only which should be about 1/2
of this estimate. In any case, if we assume that they will
slash the prices of these by 25% to unload them, then we
are talking about 16M. This is nothing, it is less than
$.01 EPS.
*********
3. If cpq is having a major fire sale of PC's, we should
have heard about it form Dell, HWP, or IBM. In fact, Dell
said that PC pricing is rational. Here is what one Dell
executive has said recently:
From the article:
Rational pricing
Meanwhile, Rollins settled some concerns about PC pricing, saying "the
pricing environment has become rational. We don't see that changing
throughout the year."
By rational, Rollins explained that Dell doesn't "see as much of the
selling below at what appears to be cost in the market place that we
have seen before." The company's competitors appear to be "backing off
in terms of the aggressive big or list pricing we've historically
seen."
One fund manager, who asked not be named, took the comments to mean
that "Hewlett-Packard and Compaq are not going to sell at a loss this
year."
cbs.marketwatch.com
*********
In summary, I haven't seen anything which supports what Kumar is
saying, and no other analyst confirmed his comments. Of course, Rosen
ignored these comments because he is comfortable with the low EPS for
Q2 ($.23). If he responds to Kumar comments, he will be obligated to
respond to any other negative comments from other analysts. IMO, it
was handled properly. Rosen didn't give guidance and most likely he
would have warned by now if he isn't comfortable with the estimates.
After all, he is a WS guy, he understands.
Regards
Salah |
