El: The earnings estimates I or anyone posts here are "irresponsible" in the sense that we are not accountable to anyone but ourselves. In the unlikely event that anyone is influenced by my prediction of 38 cents, let me explain my flimsy rationale.
CPQ was comfortable with 35 cents. It has never changed its guidance. I assumed that it expected to exceed by at least 5 cents i.e. 40 cents.
Given its cautionary words that unless March compensates for the slowdown in the first six weeks its private target might be missed by 1 cent, and given its garbled guidance on the Brazil devaluation which could be a one time charge of 2 cents, I assume that its private target is now 37 cents.
Analysts predict a range from what, 20-35, (does anybody know what the exact top end of the range is?) and the "average" is now reported to be 33 cents. My 38 would still give CPQ its 5 cents surprise.
The Club Thread, which was more optimistic and more accurate
than this thread in 4Q, is ranging between 29-40, when I last looked, and I think its average is about 34.
I cannot enter into the composition of the original analysts average of 35 cents (assumed private 40 cents). I don't know how much of it, if anything, was related to tax credits. Lynn has brought to my attention that on p 45 of the Annual Report, there is a commentary which could be interpreted to mean that there is still $2.9 billion available in tax credits, but a further note to the effect that the general tax rate might rise from 15% to 32% as between 1998 and 1999. This is further complicated by a tax holiday available to that proportion of production which emanates from the Singapore plant. So what effect will taxation have on the bottom line? At first sight $2.9 billion would appear to give the company lots of scope to meet the target figures. But whatever the effect of taxation, analysts will be looking at underlyng operational results and forward guidance.
Calculations based on comparisons are made difficult by (a) the unusual conditions applying in 1Q 1998, when the company was trying to shift a backlog of inventory, virtually at cost and (b) by the surge in sales in 4Q, which may or may not have been boosted by YK2 purchases brought forward (c) by the organic, structural change within CPQ whereby efficiencies from the DEC merger are just coming on stream in full force and revenues from high-end products and from services are growing as a proportion of the whole.
The theme running through many posts (and some journalistic analysts) is that CPQ cannot be trusted and that it - or some analysts - know some deep dark secret, probably involving channel stuffing, or shortfalls in orders etc. If that is the case then prediction is pointless. We can only proceed on what we are told or what we can infer by reasonable deduction from what is known. I assume that CPQ is truthful, otherwise I would never have invested in it in the first place. Nor do I believe that a company is incompetent that is No. 2 in computing after IBM and will have moved from $30 billion to $50 billion revenues in about 2 years. |
