Compaq Execs Sold Before Shares Fell:
Insider Focus (Update2)
Bloomberg News
March 19, 1999, 1:36 p.m. PT
Compaq Execs Sold Before Shares Fell: Insider Focus (Update2)
(Updates with closing share price in 7th paragraph.)
Houston, March 19 (Bloomberg) -- Compaq Computer Corp.
executives sold about $50 million of stock in the weeks before
the No. 1 personal computer maker said its January sales were
slow, news that sent the shares down 22 percent in three days.
Chief Financial Officer Earl Mason and senior vice
presidents John Rose, Enrico Pesatori and John Rando were among
top executives who sold shares from Feb. 1 to Feb. 24, according
to the Washington Service, which tracks such sales. A total of 10
executives disposed of shares in option-related sales.
Compaq told one analyst and a group of investors on Feb. 25
that January sales to smaller businesses lagged forecasts because
many companies bought new PCs last year. Compaq's shares fell 14
percent the next day after the analyst, Michael Kwatinetz of
Credit Suisse First Boston, cut his profit forecast. Now, some
analysts say demand hasn't picked up enough to offset the
slowdown, and they're reducing estimates even further.
''If (executives) had a feeling that things weren't going as
well as they hoped, it doesn't surprise me that they would sell
beforehand,'' said Elizabeth Poisson of CDA/Investnet, which
tracks insider buying and selling.
In fact, executives needed to look no further than last
year's first quarter.
Houston-based Compaq stunned investors in March 1998 by
warning that it would break even, when forecasts were for profit
of 35 cents a share. The company shipped too many PCs and got
stuck with extra inventory, cutting profit to a penny a share.
Compaq fell 1 3/16 to 30 11/16. The shares have dropped 40
percent since Jan. 27, when they touched a record 51 1/4, buoyed
by strong fourth-quarter profit and holiday and year-end PC
buying.
Warning
Analysts now expect Compaq to have trouble meeting first-
quarter estimates of 33 cents a share. Ashok Kumar at US Bancorp
Piper Jaffray slashed his profit forecast to 20 cents from 35
cents yesterday.
The first inkling of a slowdown came at a meeting between
CFO Mason, analyst Kwatinetz and a group of CS First Boston's
clients as they visited several Texas high-technology companies.
At Compaq's headquarters on Feb. 25, Mason told the analyst
and investors that January was slower than expected, in response
to a question from Kwatinetz.
Kwatinetz cut his earnings estimates the next morning, and
two other analysts cut either estimates or ratings, sending the
stock to its biggest single-day plunge in almost three years.
At the time he voiced his caution, Mason had already sold
265,236 shares Feb. 1 in an option-related transaction, giving
him a profit of $4.87 million.
Pesatori, head of worldwide marketing, sold 10,000 option-
related shares for a profit of $333,200 on Feb. 8.
Selling
Compaq said the executives are allowed to sell only during
specific times after the company releases earnings.
''Compaq policy ensures that these sales have been made in
compliance with all laws governing stock transactions by
insiders,'' spokesman Jim Finlaw said. No executives were
available for further comment.
Others who sold include Rando, who joined Compaq in June
with the acquisition of Digital Equipment Corp. He sold 75,615
shares related to options for a profit of $1.15 million on Feb.
23. Rando heads the services business that helps customers set up
and run their computer systems.
Rose, who runs the high-end computer business, sold 110,000
shares acquired through options for a profit of $3.98 million on
Feb. 3 and Feb. 22. Rodney Schrock, who runs the AltaVista Co.
for Compaq, sold 63,395 shares for a profit of $2.13 million on
Feb. 1.
William Strecker, senior vice president of technology and
corporate development, sold 120,000 shares for a profit of $2.84
million on Feb. 16. Thomas Siekman, general counsel at Compaq,
sold 60,000 shares for a profit of $1.65 million on Feb. 4.
Michael Heil, senior vice president of sales and marketing,
sold 94,168 shares for a profit of $10.6 million from Feb. 1 to
Feb. 5. Michael Winkler, senior vice president of the PC
business, sold 143,336 shares for a profit of $4.72 million, on
Feb. 1 and Feb. 24.
Slower Sales
Earlier this year, Compaq had been expected to have first-
quarter sales of as much as $9.98 billion. Now analysts have
scaled back forecasts to about $9.4 billion.
Compaq's sales were $5.69 billion in the year-earlier
quarter, not including $2.96 billion for Digital Equipment Corp.,
which Compaq bought in June.
Compaq said orders picked up in February. However, analysts
are concerned that the growth wasn't enough to offset January's
shortfall. That means much of the quarter's results will hinge on
shipments in March. |
