This mid-day's street.com CPQ 'stuffing' respones
Herb on TheStreet: More Signs of a Slowdown in the Computer Industry, but Signals Are Conflicting
By Herb Greenberg
Senior Columnist
10/12/98 6:30 AM ET
MonDayne:
Computer capers: Investors looking for signs of trouble would've gotten more than they bargained for if they had read Merrill Lynch analyst Jerry Labowitz's report Friday on Avnet (AVT:NYSE), a big electronics distributor. High-end workstations make up around a quarter of Avnet's revenue. That biz, Labowitz wrote, has been growing at an average rate of 36% over the past five years. But in the fiscal first quarter, he says, he expects growth to slow to the "mid-single digits." As a result, "We may need to lower our growth expectations for the next few quarters" for that business, he wrote.
From 36% to the mid-single-digits?! Yes, you read that right. That's quite a slowdown. In other words, companies are cutting back on buying the superexpensive workstations. They're cutting back on buying data-processing software (Oracle (ORCL:Nasdaq), PeopleSoft (PSFT:Nasdaq), Baan (BAANF:Nasdaq) and SAP (SAP:NYSE ADR) have already shown the effects of that). Even CompUSA (CPU:NYSE) talked about a sharp slowdown in its corporate PC business.
Can that be good news for Compaq (CPQ:NYSE), Dell (DELL:Nasdaq) and the others? The bears don't think so. What about tight inventories? Doesn't that mean demand is strong? Not according to some analysts, who think it means demand is OK and suppliers have cut way back on production capacity.
Yet one of my regular contacts, who is just as likely to go short as long, doesn't buy the "the end is near" argument for technology. "Nobody has a good feel for what's happening," he says. "Things that used to be reliable sources in the past no longer are."
Lots of grasping (and some gasping) going on.
Reader revolt: An item last week regarding the way Compaq has possibly offered special deals, known as buy-ins, to distributors and resellers produced an unusually heavy amount of nasty mail reminiscent of rabid, ostrich-like responses from followers of Iomega (IOM:NYSE) and that ilk. Most of it, of course, was anonymous, such as this, from Nexpa10, who wrote: "Don't you know you can get sued for spreading damaging rumors (then you might actually have to get a real job). Next time, spend a little time and learn the facts before you make a fool of yourself. GO CPQ."
(I did; I reported that an analyst from one of the country's largest brokerage firms had the guts to bring up a sensitive issue like buy-ins and suggest Compaq may have taken extra merchandise. I reported Compaq said it didn't do buy-ins. I then reported that despite Compaq's denial, the analyst hadn't rescinded his report. The column didn't say Compaq had stuffed the channel, it just questioned whether it was reverting to its old ways. Methinks too many investors are still paying attention to the garbage they read on message boards, rather than reading the actual copy. Considering all the hype of recent years I would've thought investors would've become smarter about doing that.)
Emailer Alex counseled me to "be a man, show your face on CNBC and clear the mess you started with CPQ. Or better, change profession. How about plumbing?" (What mess?)
And from trenchrat came this: "Please don't spook investors on this issue. Many have large positions and are stuck right now. Give us a small break, please." (Keeping your head stuck in the sand won't improve a company's performance; sounds like you're the kind of person who stares at the phone waiting for it to ring.)
Adds Robert Papp: "Nice trash talk on CPQ. I sure hope you didn't tip JJC off (YAHOO chat... 'I am WAY LONG CPQ.') Better be sure on this one OR major EGG on your face." (I like mine scrambled.)
"BTW, I'm WAY LONG CPQ... too! If you haven't noticed." (No, duh!)
SJC writes: "It amazes me when 'reporters' decide to spread rumors without any evidence to substantiate their claims. A reasonable man can only conclude that you have an obvious bias against the company." (I'm writing this on a fabulous Compaq Armada7792DMT. It's far better than my old H-P -- and this coming from a guy who used to believe making PCs was merely wrapping plastic around components. Some actually ARE better than others and this Compaq Armada is great. How's that for bias!) "You would have much more credibility if you had waited for the real inventory numbers rather than speculating on what might be happening." (Sorry, waiting is not what this column is all about.)
Finally, SB wrote: "As a Compaq shareholder I was infuriated at the remarks in your article regarding Compaq stuffing. As you now know those rumors were false and hurt the value of my holdings. Please issue a retraction to the article." He then went on to send me what was purported to be Donaldson Lufkin & Jenrette's response, but was merely a post on the Yahoo! message boards supposedly rehashing that response. Somebody else forwarded a response from Lehman Brothers.
Unbelievable. Don't you goons know the analysts are usually the last to know? That's why you should always pay attention to the one (in this case, Rich Gardner) who is willing to break from the pack. Oh, and by the way, did any of you geniuses notice that while warning of the buy-ins, Gardner not only maintained his buy rating on Compaq but kept his 40 price target.
Oh, and yes, I saw Compaq CEO Eckhard Pfeiffer on CNBC Friday saying he's not giving incentives. I wanna believe, but believing would have gotten you in trouble earlier this year. (Didja see all those boxes of remanufactured Compaqs stacking up on the CompUSA sales floor at the end of the quarter? Hmmm.)
Michael |
