FROM wsj. I don't think the compac warning changes the story of timing for rmbs.
''Some businesses may be cutting back on buying plans because they are waiting for machines with more powerful Intel microprocessor chips as well as for Windows 98, the latest upgrade to Microsoft's Windows 95 operating program, and a new version of the Windows NT operating system for networked PCs.
"We're between operating systems," Mr. Rossi said. "That affects
corporate purchases."
COMPLETE ARTICLE:
Compaq Warns It Will Report
A Break-Even First Quarter
Computer Maker Cites Price Cutting
In Bruising Battle for Market Share
An INTERACTIVE JOURNAL News Roundup
Compaq Computer Corp. warned late Friday that it expects to report a break-even first quarter on flat sales, reflecting price cuts taken as the company fought for market share in the highly competitive North American commercial sector.
The disclosure by the nation's leading personal computer maker, made after the close of the market Friday, marked the third successive day that a leader in the technology sector warned its first-quarter earnings would disappoint Wall Street. Chip-making juggernaut Intel Corp. warned Wednesday and telecommunications behemoth Motorola Inc. followed suit Thursday.
Motorola Says First-Quarter Profit Will Disappoint Due to Price Wars
Intel Lowers Forecast for Profit, Revenue on Weak PC Demand (March 5)
Company Profile: Compaq Computer
The PC seller said its outlook for the second quarter remains "cautious" as well, as market conditions remain "competitive." Nonetheless, Compaq said it "fully intends" to expand its business and add market share in 1998.
Compaq chief executive Eckhard Pfeiffer said the company has resorted to aggressive price cuts to trim bloated inventories. Like other PC makers, Compaq is trying to dramatically reduce warehouse stocks so that it can bring new products to market faster and avoid the costs of cleaning out old inventories.
The company said it cut prices and boosted promotional efforts once it became clear that sales in the North American commercial channels weren't meeting expectations. The company said the "aggressive" price cuts and promotional activity would continue throughout the first and second quarter as Compaq moves to slash channel inventories and accelerate the implementation of its optimized distribution model.
Channel inventories are products shipped to retailers but not sold through to the end customer.
The company said timing its pricing and promotional actions to coincide with the closing of its acquisition of Digital Equipment Corp. "will position us to take full advantage of that merger."
Compaq's trouble in the market for business computers may help illuminate why Intel is having troubles meeting expectations. Intel said its slow sales were partly due to the fact that PC makers were forced to sell from existing stocks of computers instead of buying chips for new computers.
The Intel warning aroused fears that the booming computer industry may be slowing, but industry analysts are divided about whether Intel and Compaq are being hurt by inventory problems or sagging demand industrywide.
"The PC is midway through a classic downcycle," said John Rossi, an analyst at BancAmerica Robertson Stephens & CO. "Typically the pressure starts with chip makers, then [goes to] the DRAM market and then goes to disk-drive makers.
Some businesses may be cutting back on buying plans because they are waiting for machines with more powerful Intel microprocessor chips as well as for Windows 98, the latest upgrade to Microsoft's Windows 95 operating program, and a new version of the Windows NT operating system for networked PCs.
"We're between operating systems," Mr. Rossi said. "That affects corporate purchases."
In addition to the operating-system problem, Mr. Rossi said companies' information-technology budgets were feeling the financial strain of fixes for the "Year 2000" software problem.
Mr. Rossi said he expects "surprisingly weak results" from the PC sector in the first half of 1998, adding that many PC companies have denied they're being adversely affected by the Year 2000 problem and by problems related to the operating-system upgrade cycle and the crisis in Asia.
"A lot of companies have been trying to whistle past the graveyard," he said.
But other analysts -- such as International Data Corp.'s Kevin Hause -- believe many of Compaq's problems are specific to the company.
Compaq appears to be having more problems than competitors in paring its stocks of old computers because its management is attempting to do so many things at once. At the same time Compaq is trying to streamline its distribution process, the company is completing its merger with Digital. The deal was worth $9.6 billion when it was announced in January and is the technology industry's largest merger ever. Only last year, Compaq bought Tandem Computers in a $3 billion stock deal that doubled its sales force.
Compaq is also trying to speed up sales of more powerful business computers. Its goal is to be among the world's top three sellers of a range of machines, not just PCs, by 2000.
"Management is spread perhaps a little thin and is distracted by very large tasks and goals they've set for themselves," Mr. Hause said.
Compaq chief financial officer Earl Mason acknowledged that the company was trying to accomplish several major goals at once. "We don't deny that we're trying to do an awful lot," he said. "I would say to you we have good solid plans to make things happen and we feel we can get it done."
Compaq shares weren't hammered along with other leading tech stocks in the sell-off prompted by the Intel forecast. On Thursday, Compaq's shares fell 87.5 cents to $27.125 on the New York Stock Exchange; on Friday, they rose 50 cents to $27.625 ahead of the profit warning. (Shares of Intel dropped 13% Thursday, while PC maker Dell Computer Corp. slid 5% before bouncing back Friday.) But Compaq's shares have nonetheless lost about 20% of their value in the last two weeks even as the overall market has risen slightly.
A First Call survey of 32 analysts showed a consensus earnings estimate of 35 cents a share for Compaq's first quarter and 38 cents for the second. The company earned 27 cents a share in its year-ago first quarter and 30 cents in the year-ago second period.
In after-hours trading Friday, Compaq fell $2.50 to $25.125 and led other big high-tech names lower. Dell was down $6.75 to $131.75, Microsoft was down $2.5625 to $80, and Intel was down $1.375 to $76.75. |
