Good morning, Roy & All...Warn: a long post..
trusting that everyone is having a fine Sunday...
OTOT---CPQ---Jan. 30, 1998 - "..After reviewing the income
statements of CPQ & DEC, as well as our forecasts for the
coming year, we concur with CPQ's statement that by the
4th Q, the deal will be accretive with further accretion
coming in 1999. On that basis, we have increased our EPS
projections to $1.74 for FY98 and $2.17 for FY99.
The pro-forma combination of CPQ & DEC for calendar year
1997 indicates a revenue base of $37.6 billion. This would
place CPQ in the number 2 slot behind IBM in terms
of market share in the tech business. We estimate that 83%
of this revenue come from products (primarily hardware) with
the remaining 17% from computer services. Gross margins were
29.5%. Our estimate shows that the difference between product
and service GMs was slight, with product GMS at 29.6% while
servie GMs are estimated to be 29.1%. Operating expenses
represented 21.1% of sales. In our view, this is the
area that will need the most work. For CPQ alone,
operating expenses were 15.3% of sales last year. The
combined companies would have had a tax rate of 29.5% in
1997. DEC has been paying a very low tax rate for the past
couple of years due to a large amount of NOL carry forwards.
This is expected to continue to benefit CPQ after the merger
takes place. Net income for the combined co's would have
been $2.3 billion with EPS of $1.32, assuming an additional
150 million CPQ shares issued. That's dilution from
CPQ's fully diluted EPS of $1.35.
Prior to the merger announcement, our 1998 forecast for CPQ
had assumed a revenue growth of 22%, further GM improvements,
particularly on the service side and good cost controls
in operating expenses. For DEC, our model had assumed 3%
revenue growth, with good growth coming in storage products
and servers, along with improvements in workstation sales.
The sale of the networking business would limit total
revenue growth. In addition, the better valuation of
of the dollar versus some of the European currencies would also
provide better revenue gains in this part of the world. We
had also been assuming GM gains for DEC of 80 basis points,
most of which would be coming on the product side. SG&A
spending is also expected to remain under tight control,
in the G&A area.
When we combine these two models and assume a tax rate of
30%, as well as an additional 150 million shares, we are
coming up with EPS of $1.74. We expect to see accretive
EPS in both the second and fourth Qs with further accretion
continuing into 1999. In that year, we are projecting EPS
for the merged company of $2.17.
CPQ's purchase of DEC will certainly be meeting its goals
of becoming one of the top three tech leaders in this country
as well as reaching its target of $50 billion in revenues
before the year 2000. However, the company is taking on a certain
amount of risk with the DEC merger. Accordingly, we
expect shares to receive somewhat lower valuations in the
coming months than this stock has received recently..."
c. Vicker STock Research.(212)425-7000 (Emphasis, mine)
Roy, recent announcement of DEC's spending freeze, you
think CPQ is on track? And SB's inventory channel
thingie is smoke screen?
Comments pls?
//dom
BTW, I am only a subscriber to Vickers...this is a sellers'
market, buyers beware...trade accordingly...
My granpappy wanted me to be a jesuit priest...hehehe
|
