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Technology Stocks : Compaq
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To: rudedog who wrote (49189)2/22/1999 6:07:00 PM
From: jim kelley  Read Replies (1) of 97611
 
Dog,

I see you have come back from the dead after more than 3 days.
Hope you are feeling well. I hate hospitals and I have had to spend a lot of time in them this last year looking after sick people.

Never fear I am working diligently in my analysis of DELL as well as CPQ and GTW and IBM. I just find CPQ's financial statements fascinating.

CPQ lost 3.081 billion dollars last year in their hardware business.
This is the real loss and does not include the writeoffs, or special charges connected with the merger.

CPQ made 243 M in Q4 after an abnormally low tax rate. This is way less than DELL despite the huge volume of shipments.

CPQ actually did not make any money in the hardware business in Q4 if they stuffed the channel with as little as 2 weeks of inventory.

2 weeks is 1/6 of a quarter or 16%.

9145 M X .84 = 7,682 M in real sale through revenues.

Costs are 8,797 M.

7,682 - 8,797 = - 1115 M

Now Dan Niles and Kumar pegged the CPQ channel fill at 3 to 4 weeks. If CPQ's target was two weeks they are over target by 1 to two weeks.

Perhaps now you will agree that the issue of channel stuffing is very important in interpretation of CPQ performance.

Right now the service business is paying CPQ's freight.

Incidently, I capture my short term profit position at 108+ and made a fortune in DELL and I will be paying my uncle a lot at the end of the year.

My current recommendation on DELL is hold. But that could change at anytime. I am was fully hedged in my long term position and will be unwinding that hedge at the appropriate time to capture the 110-80 price movement.

Regards,

Jim Kelley





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