CPQ was on Barron's. The following are some highlight od the Barron's articla - Panic no more.
PANIC NO MORE.
So, what happens next? We addressed that question at length
recently, in our third annual Mutual Fund Forum focused on
technology funds.
Q: A few weeks ago, the market became concerned about retail
PC demand, after some comments on the subject from Comp-USA.
Anyone worried?
Wick: Baloney. U.S. consumer sales account for only 10% of
the global PC market. It's misplaced concern. In any case,
the number of outlets selling computers has increased
dramatically. In addition, because DRAM memory prices have
fallen 80% this year, average selling prices of PCs at
retail outlets have fallen by about $300, or roughly 8%-10%.
This naturally exerts a lot of negative pressure on
comp-store sales numbers. More people are buying direct from
Gateway 2000 and Dell. So, it's not surprising to see chains
report lousy comps. Meanwhile, corporate spending on PCs is
very healthy, and the potential outside of the U.S. is huge.
The PC market has shown double-digit growth in units shipped
for the last 10-plus years. That's not going to change in
1997.
Q: Chip, how do you see it?
Morris: Retail chains buy big-time ahead of the Christmas
season. So for someone to say inventories are high - well,
duh. The home PC industry does face some challenges, though.
Saturation levels are high in homes with incomes high enough
to plunk down three grand on a PC, software and peripherals.
Also, Intel is rolling out the MMX, its multimedia enhanced
microprocessor, and new models taking advantage of it won't
appear until the first quarter. And as much as the industry
would like to keep that a secret, these days there aren't
any secrets. For many consumers, there's no compelling
reason to buy right now.
Q: Same stuff, different day.
Morris: Computers come with higher- speed modems, more
memory, more storage capacity and a faster microprocessor,
but not many new features. That will change by Christmas
1997, thanks to the new Intel chip. I'd also bet someone
will come out with a $1,200 PC to really attack the market
for consumers with incomes under $30,000 a year. We've felt
the pain of weak home PC sales in our consumer software
stocks. The sector has had a lousy year. But, as Paul said,
corporate demand is robust.
Q: Driven by Windows NT.
Morris: People underestimate the share of the corporate
market Windows NT will have by this time next year. That's
good for Microsoft, and for the overall PC market.
,,,,,,
Q: How about another pick?
Wick: We like Compaq. Not only is the PC market growing, but
Compaq is gaining share. In Europe, Compaq is just
pervasive. The European brands can't make any headway
outside their home turf. Olivetti seems able to sell only in
Italy. Vobis has no luck outside Germany. Groupe Bull is
okay in France, a disaster elsewhere. Compaq is taking share
all over the place. And they're executing better. They've
changed their approach on inventory management. In the
September quarter, inventory turns were running at 9.3
times, up from 3.7 times a year ago. They've been
off-loading inventory risk onto their vendors.
Q: Is that sustainable?
Wick: If anything, inventory turns have continued to move
up. It's enabled them to generate a ton of cash. They've got
over $11 a share on the balance sheet, about $2.4 billion.
Q: What are they going to do with it?
Wick: They might do some acquisitions; they've become
something of a player on the networking side that way. I
think they'd like to model the company after
Hewlett-Packard, and become a broader technology company.
One of the other things that's happened is that they came
out with rich new products. Consumer desktops, corporate
desktops, servers and notebooks. Resellers have been raving
about them. And Compaq has reached a point where it can
crank out these products. It's one reason they've started to
surprise on the upside again.
Q: They should benefit from Windows NT.
Wick: They do. Compaq generates 80%-plus of its revenues
from corporations. They're going to be a big beneficiary.
Q: What about earnings?
Wick: This year, $4.50 a share. Next year, $6. The stock is
around 77. |
