The Ax: Notebook: Compaq, Intel Post Quarterly Numbers
By Eric Moskowitz
Staff Reporter
10/14/98 2:45 PM ET
Is Compaq (CPQ:NYSE) really back? The world's largest PC maker reported third-quarter earnings that were a penny better than the 6-cent analyst consensus Wednesday before the open, and its stock was up 1 3/16 in the early afternoon hours as a result.
Although the Houston, Texas-based company's conference call was strictly off-limits to the media, BancAmerica Robertson Stephens analyst Dan Niles, who rates Compaq a buy, liked what he heard. Niles, who had spotted Compaq's initial channel inventory problems last year, says the company's gross margins and days of inventory levels were both better than he had projected. "Gross margins were a full two points better than I had [24.9% vs. 23%], which means they are starting to make money on PCs again," says Niles, who had an 8-cent-a-share earnings estimate for the quarter. Likewise, days of inventory came in at just three weeks, slightly healthier than the 3 1/2- to four-week figure bandied about by analysts for Compaq's third quarter. (Robbie Stephens hasn't participated in any of Compaq's offerings.)
Revenues were the one real sore spot for Compaq, however, coming in at $8.8 billion, around $200 million less than what even the more bearish analysts had predicted for the quarter. Again, Piper Jaffray's Ashok Kumar foresaw this Tuesday. While Asia/Pacific year-over-year revenues were down 9%, North America and Europe both grew by 30% to make up for the shortfall in the Far East. More good news is that quarterly revenues are up 51% sequentially and 36% year over year, a marked improvement over Compaq's first two quarters this year.
Intel's Bulls Win A Battle, But The War Isn't Over
The 89-cent-per-share earnings number Intel (INTC:Nasdaq) posted Tuesday was good, but not good enough for investors who can't get past their collective wall of worry about the Santa Clara, Calif.-based chipmaker. The analyst consensus estimate for Intel's third quarter was only 80 cents, with Morgan Stanley's Mark Edelstone predicting 82 cents a share and Merrill Lynch'sThomas Kurlak 80 cents.
However, it turns out that Kumar -- who covers key semiconductor as well as PC hardware stocks -- was more bullish with an 84-cent number, and on Wednesday went so far as to bump his fourth-quarter earnings estimates from 92 cents to 94 cents.
"For the December quarter, we expect revenues to grow 6% sequentially to $7.1 billion," says Kumar, who rates Intel a strong buy. (Piper Jaffray hasn't participated in any of Intel's public offerings.)
For Edelstone, Intel's third quarter also was a vindication for the analyst, who has been bullish since April. He had bumped up his earnings estimates from 79 cents to 82 cents a month ago, saying at the time that "we believe that further upside potential is highly likely" from the 8% to 10% sequential revenue number Intel threw out to investors. It turns out Intel's revenues were up 14% sequentially to $6.7 billion.
Edelstone, who has a strong buy on the stock, bumped up his fourth-quarter Intel earnings per share number to 99 cents a share from 96 cents. "We believe Intel once again provided conservative guidance for its fourth-quarter outlook," Edelstone told clients Wednesday. "As a result, we believe Intel's current guidance will likely sow the seeds for another positive earnings surprise on the fourth quarter." (Morgan Stanley has participated in an underwriting of Intel put options in the last three years.)
What about Kurlak, who still sees this semiconductor industry downcycle getting prolonged by macroeconomic events? For Intel, Kurlak maintained his neutral rating, but grudgingly raised his 1998 annual earnings estimates to $3.17 from $3.00. Kurlak now has a 90-cent estimate for the fourth quarter, up from 81 cents.
That's not necessarily a bullish sign for Kurlak. "We estimate that orders are flattening recently, implying a peaking of new order levels entering the fourth quarter," says Kurlak, whose firm hasn't performed any underwriting for Intel.
Kurlak is worried that the seasonal PC upturn "may have crested for PC component companies." Sounds like he is trying to spread his gloomy views to sectors beyond the semiconductors.
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