Ted:
1: need continued progress in corporate PC arena, how much can IPAQ help there?
This is one area in which there is "clear visibility". The drop in overall revenues from commercial PC was anticipated. As expected by most, YK2 had some effect and there may have been postponements to await iPaq in 1Q. But the percentage drop in revenues was greater than most anticipated. Perhaps the competition was more aggressive. But commercial PC's have been yielding a 6% operating loss, so the drop probably had a net beneficial effect on the bottom line. Losses from Commercial PC's were halved quarter on quarter. So a weak trend in revenues produced a strong trend in earnings for this division. Capellas promised profitability this year.
iPaq is designed to be cost-efficient and will ship direct. Better still, it is not pie-in-the-sky - it started shipping this week. It will also help boost sales of complete hardware systems. It will help reduce the still too high inventory.
The one back-handed benefit of the drop is to emphaisse that less thasn 50% of revenues are from PC's.
2: 5% sequentially in Business Critical Servers Division seem weak, but at least positive considering Y2K concerns.
I agree on both counts. But if execution on new products can be trusted, growth could more than double in this high margin stuff.
3. 6% sequentially in storage seems slow. Y/Y not given.
I have been sceptical of COMPAQ's claims to be a major supplier of storage for some time. The best that can be said is there is a lot of potential.
The 9% sequential growth in services, vs. 3% year to year is heartening, but without Q4, services would have lagged in 1999.
A year ago, everyone touted services as the division with the fastest growth potential and the highest profit margins. It was said to be one of the main reasons for the DEC acquisition. Recently Capellas was calling it "the hidden jewel". Given his statements, growth is very disappointing. It is one of the areas analysts should question him about closely. I wonder whether the brain drain from COMPAQ, to which Capellas has referred in this week's Houston interview, has impacted the services division most? Once again, we can say it has, as yet, unrealised potential.
It is pretty obvious that CPQ has had some problems and it wasn't all channel stuffing. The problem appears to have been in the upper end of the enterprise business masked by the success of INTC based servers.
Still worrying. The postponement of Wildfire to 2Q is yet another apparent failure to execute quickly enough. But, to be fair, another area where there is clear potential for susbtantial and imminent improvement.
In summary, all divisions are poised for growth in revenues and earnings and no division is on a downward trend or grappling with hidden structural problems. But PC's are still caught up in the direct-indirect dilemma even though there is improvement. Consumer PCs are a stand-out success and should continue to be bouyant this year. Overall execution of the "reforms" is ok but not impressive. But the results may be viewed as encouraging and suggest an upward trend, but have not completely eliminated the need for "wait and see". |
