THREAD - THIS ISSUE IS DEFINTELY A MANAGEMENT SCREW-UP IF THE FOLLOWING IS TRUE !Dow Jones Newswires -- March 6, 1998
Compaq 1Q Became Victim of Inventories At Distributors
By Mark Boslet
PALO ALTO, Calif. (Dow Jones)--Large inventories of assembled computers and slower demand worked against Compaq Computer Corp. (CPQ) in the first quarter, halting growth at this industry leader.
The Houston computer maker said Friday it expected first-quarter sales to be flat with those of a year ago, when the company posted $4.8 billion in revenue.
Earnings for this year's quarter are to be break-even. Analysts were expecting 35 cents a share.
In a press release, Chief Financial Officer Earl Mason blamed the company's weak performance primarily on the "very competitive" North American commercial market for machines sold to businesses.
But analysts were quick to point out that Compaq is suffering from high inventories at its distributors, who were unwilling to stock in additional computers.
Demand is a little bit less than what it was in 1997, but there is no significant aberration of demand, said Kevin Hause, an analyst at International Data Corp.
The major issue is that Compaq's inventories are double what they were six months ago, Hause said. The computer maker "stuffed the channel" at the end of 1997 to push up market share and make its annual results look better, he said.
In its press release, Compaq also referred to the inventory dilemma. "We are putting in place price reductions and aggressive promotions in the first and second quarters to reduce these channel inventories and accelerate the implementation of our Optimized Distribution Model," said Eckhard Pfeiffer, chief executive.
Analysts said that the first quarter is typically a seasonally slow period, especially following on the heels of the busy Christmas selling season. This year has been made worse because microprocessor-supplier Intel Corp. (INTC) has several new products coming out within a couple months and some large computer buyers are waiting. Intel also has warned of a troubled quarter.
But demand, they say, has not collapsed.
Witness Dell Computer Corp. (DELL), which continues to do well and which distributes its machines directly so it is not hampered by inventories at distributors, Hause said.
In its release, Compaq said its outlook for the second quarter is cautious.
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