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Technology Stocks : Compaq
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To: Loki who wrote (37806)11/29/1998 8:55:00 PM
From: rudedog  Read Replies (1) of 97611
 
In Q497 CPQ showed a 9.1% net profit on sales of $7.323B (before the acquisition of DEC). In 1Q98 and 2Q98, DEC appeared to have something like a 10% net profit, but there were so many opportunities to cook the numbers that I don't really know what to make of them.

Is your 20% reduction of .57 and then averaging (.36-.46)
reducing the initial net profit estimate of 9%????

Yes - my pessimistic side says that the high headcount in the field at the moment will add cost that will not be made up by increased revenue, and that CPQ will need to make some cuts in both the field and in engineering staff to get costs back in line. I think that all of my SWAG adjustments get me to the same place you are - about a 7% net.

But there is no reason CPQ could not get to something better than the 10% net profit number with a little cost control, and they have shown themselves to be very good at that in the past. In 1996, CPQ was generating more than a million dollars per employee, twice the next best guys (Dell was doing about $470K per employee then) and 4 times better than IBM and HP. Even today they are doing better than $500K per employee, and may still be the best in this particular metric. If they are anywhere near as good at trimming the DEC team, we should see both GM and net rise. Another reason to think CPQ is a good investment long term.
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