Kumar may be getting privileged information from re-sellers or from one of COMPAQ's major business suppliers or partners, and I know one person who thinks he gets it from Intel. But I don't believe he gets anything from COMPAQ. The danger in relying on his type of recommendation is that you never know what kind of re-seller politics or supplier/competitor politics is influencing the information he receives: you never know how much he adds or subtracts from it, you never know how complete or incomplete it is, you never know how much of his final product is guesswork.
The pattern of his utterances suggests that he relies more on information than on reasoning. His analysis often seems to be a post facto interpretation justification of what he has heard. He changes his mind a lot.
In February, he was saying all kinds of positive things about COMPAQ when it was in the mid-40's. After a particularly bullish interview he was asked what price he would enter. Paradoxically he said "mid-30's - which was very conservative given the enthusiasm he had just displayed.
Kumar missed completely the slow January and February sales and commented on it only after the stock had fallen in one day from $41 to $35. He was mainly angry that Mason had told only one analyst and not him.
He did not warn that it would go to $30-32. When it got there, he again began talking about it positively and kept the BUY going. His first estimate of 1Q EPS was within the normal range with other analysts. His second estimate at 20 cents was quite late and came as a shock because it was not only out of line with other analysts but so out of line with his own recent estimate. As we know he was about 20% too high.
At the time of 1Q earnings he said that CPQ would go to $24, it did and stayed there for quite a time. He has never warned that it would go lower before his warning last week. He has reiterated his BUY. Last week he was interviewed and said that "where is the downside?". Three days later he issued his warning of inventory problems, says that the move to 4 wholesalers was "window dresssing" and says that there might be a loss and the share price might go to mid-teens.
All this smacks of a guy who is in a hurry to get out information which he thinks puts him ahead of his competitors. The rationale is added afterwards. The rationale is uninformed. The upshot is that if COMPAQ goes to the mid-teens or anywhere near it he can say "I told you so". If it goes to $30 he can say he recommended it as a BUY at $23.
At the end of the day it is COMPAQ's responsibility to issue reliable and prompt information within the normal conventions. I suspect that we will hear something very soon. We have heard nothing from the company to support the Kumar statements about inventory problems and write-offs. In the absence of veriable information my guess is that the cost of moving to 4 dealers will be written-off, that it may include some inventory write off, but it will not be a huge cost. My guess is that there will be strong growth in the high-end, storage and services, and from overseas sales of PC's. But there may be loss of market share and margins in PC's. |
