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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: DRRISK who wrote (62575)	6/8/1999 10:23:00 AM
From: Aitch	Read Replies (2) \| Respond to of 97611

Hi Doc and thread, This is what the furore is about... CPQ: Contra Revenue & Product Write-Downs Could Result In Operating Loss 08:22am EDT 8-Jun-99 US-Bancorp Piper (A. Kumar CFA) Cockroach Theory; Contra Revenue And Product Write-Downs Could Result In Operating Loss Rating: Buy, Aggressive EPS 1997 1998 1999E Mar $0.27 $0.01 $0.16A Jun $0.34 $0.02 $0.03E Sept $0.34 $0.07 $0.24E Dec $0.42 $0.38 $0.37E FY $1.37 $0.47 $0.80E P/E 17.4x 50.8x 29.8x Revs ($Mil)1997 1998 1999E Mar $8,596 $5,687 $9,419A Jun $8,978 $5,832 $9,500E Sept $9,434 $8,791 $10,000E Dec $10,647 $10,859 $11,500E FY $37,655 $31,169 $40,419E Pro forma results. EPS from operations. Tables may not add due to rounding. Highlights Compaq's mis-execution in its commercial desktop line was responsible for most of the shortfall during the March quarter. On a sequential basis, units and revenues in this segment were down in excess of 15% and 20% respectively. Uncompetitive pricing in the commercial desktop and mobile products relative to its peers was a key factor in Compaq's under performance. More aggressive pricing to flush out older product lines has enabled the company to pick up incremental commercial share in the June quarter. However, aggregate demand in the North American dealer channel remains weak in the June quarter. For the current quarter, demand in the retail channel remains robust. With about a third of its sales targeted to the consumer segment, Compaq should be positioned well to enjoy this strength. However most of the growth in the retail segment is at the lower price point. Compaq, due to its higher cost structure, is not equipped to address this segment well. Compounding this, the company has also lost share at mainstream price points to Hewlett- Packard. Compaq's paring down of its direct distribution partners and consequently reducing its stocking locations is no more than window dressing. To achieve logistics parity with direct vendors and still maintain its indirect capability, Compaq will need to use fulfillment providers like Insight and use the channel primarily for services. Compaq is currently sitting on about 8 weeks of aggregate inventory - 4 weeks internal and 4 weeks in the channel. The channel is filled SKUs that are overpriced relative to street value and obsolete products that cannot be moved. We expect contra-revenues (recorded against gross revenues) and product write-downs could result in a loss for the quarter. YTD the stock is down about 45% versus an 8% advance for the S&P500. However, another large negative variance to street expectations could pull the stock down to its volume at price support in the mid-teens.