NW: If I was a numerologist, which I am not, I might suggest that since the COMPAQ share price is almost exactly 50% lower than it was at earnings last year, then the earnings will be 50% lower, too, at 21/22 cents. But to complete the numerological adjustment the forward p/e was 18 in January last year - yielding a price of $50 - and the same p/e this year would yield a price of $18. Even if earnings expectations were raised 50% as a result of 4Q reports, the share price at last year's p/e of 20 would be $30. So much for numerology.
I always contribute to the guess the earnings game. But in the past I have based it on my interpretation of what COMPAQ has said, plus what has been gleaned from upmarket and downmarket reports relative to COMPAQ.
This quarter, there is nothing that COMPAQ has said that can be used as a reference. I can interpret the lack of information negatively or positively.
If I take into consideration some of the market reports, the best I can see is that the sale of consumer PC's has increased year over year but not as strongly as in the past, and the average selling price (ASP) is lower. From this I guess the profit margins are lower, too. Furthermore, those general market reports do not give enough information about commercial PC's and whether the prospect of iPaq in 2000 has caused buyers to postpone. But given that commercial PC's are unprofitable - the postponement of sales will not hurt profits even though it would yield more market share to DELL and others.
The major saving grace would be the effect of the cost- cutting covered by the 3Q charge. But we have no information about progress in the cost-cutting. This maybe because there has been no major progress or that there has been progress and the company simply has refused to inform the market and wants to use cost-cutting to manipulate the earnings and surprise the market on the upside. Off-setting potential cost-cutting is increased costs due to the retirement of Alpha-NT, increased R&D and increased advertising costs.
Nothing has been said to dispell concerns that YK2 may effect the sale of high-end servers. There is some concern that storage is not selling as well as had been expected. We have heard something about service contracts which could increase revenues in the future, but nothing about contracts that would have increased earnings in the 4Q.
If we look at anecdotal evidence - there has been an increase in the prominence of COMPAQ advertising in Europe and on the internet, generally, especially brand enhancing ads stressing COMPAQ's pre-eminence in non-stop systems. It is impossible to know whether these will result in increased sales and profits in 4Q - I guess that benefits will be seen in year 2000.
And so, like Bertrand Russel, the aetheist philosopher who said that if he is confronted by God after his death with the question "why didn't you believe in me " I will have to say - "you didn't give me enough evidence".
So, I will keep looking for evidence and if I find enough to support even a wild guess I'll let you have it. |
