Compaq news guesses (part 1)
by: Old_Blue_iiis (82/M/Hoboken, New Jersey)
74933 of 74934
...from Montgomery Securities...
Expect Major Channel Consolidation Announcement from Compaq; TECD, IM are
Most Likely Beneficiaries.
o CPQ will likely reduce its direct U.S. channel relationships from about
40 to only four or so. The move would shift billions in Compaq sales to
those still on the direct list, and could foretell a similar move by IBM
and/or HP.
o The short list will likely be the top distributors, who will provide CPQ
product to the rest of the channel (i.e., the integrators/VARs, direct
marketers and retailers).
o The clearest beneficiaries would be TECD and IM, the two largest
distributors. We like TECD best on a valuation basis @@ still only 8.4x
our CY 00 estimate despite having traded up recently. We're raising our
target price on TECD from $32 to $36.
o Other than now buying through distributors, we don't expect significant
changes in the other channel segments (integrators/VARs, direct marketers
and retailers).
o The announcement may be viewed as positive for CPQ as it should show
accelerated decision-making and less complex execution challenges under
the new regime.
We expect Compaq to announce a major channel consolidation. We believe
Compaq plans to reduce its number of direct U.S. channel relationships from
roughly 40 to only four or five. Compaq's objectives appear to be the
consolidation of channel inventory in fewer places and reduced cost of tracking
and administering reseller activities. Those remaining direct will likely
operate out of co-located manufacturing facilities alongside Compaq in Houston.
Those on the short list will likely be distributors, who will provide Compaq
product to the rest of the channel (i.e., the integrators/VARs, direct
marketers and retailers). We believe the final decisions on these changes were
made in Houston in only the last day or two. We expect Compaq to announce its
'distribution alliance program' either today or Monday.
Tech Data and Ingram would be the clearest beneficiaries of this move.
These two would likely receive the bulk of reseller volumes moved from direct
purchasing to distribution. We think the one thing taken for granted as the
new program was negotiated was that IM and TECD, the two largest global
distributors, would remain direct accounts. Less certain has been the fate of
the other major distributors, Merisel, Pinacor and Inacom (Inacom has both a
distribution and an integration business) we speculate that at least one of
these will be off the list, as will all of Compaq's smaller distributors.
Merisel may have an edge in that it is currently co-located at Compaq. The
added volumes for those remaining direct will be significant as Compaq's sales
through distribution will increase dramatically and be concentrated in fewer
hands. The add-on sales that go with PCs (software, peripherals) will further
boost volumes for the remaining direct accounts.
TECD is especially well positioned, in our view. We're raising our target
price from $32 to $36. Tech Data may reap the greatest benefits as it already
operates a large co-location facility in Houston and could begin adding volumes
immediately. Ingram has resisted vendor co-location and might need to re-direct
resources from a relatively new 600,000 sq. ft. facility in Memphis, near
FedEx, in order to participate fully in Compaq's new program. We also view TECD
as particularly attractive on a valuation basis, at 8x our CY 00 estimate of
$3.10, or less than half its growth rate. We believe the news could lead
analysts to increase estimates for TECD. We're maintaining our FY01 (CY 00) EPS
estimate of $3.10 for now, which is the Street high by $0.20.
Posted: 05/07/99, 1:24PM EDT as a reply to: Msg 74926 by pm_63
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