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

To: Steve Lee who wrote (69455)	10/22/1999 7:14:00 AM
From: rupert1	Read Replies (1) \| Respond to of 97611

Steve: I appreciate you argument. As you said, you don't know the stock very well. If you rely on technical analysis then your argument is logical - it may even be correct. My own target for re-entry had been 17 and I hoped for 15. But on the basis of the same arguments you used I bought back a portion of my original position at 19 15/16 and 20 1/4 because it had been testing support at 20 and was ready for a breakout. The slight breach of that support caused by DELL news indicated to me that CPQ was not looking for opportunities to go on down to 17 and 15. The IBM news was another aberration but it has had a more powerful effect then the DELL news. I can also appreciate that the high volume yesterday may have altered the dynamics to the downside. If it goes to 17 or 15 I will more than double up. But I am not convinced that it will continue down. The IBM news does not alter the fundamentals for CPQ and there are a lot of shorts who have done well as it descended in stages from 51 to 32 then to 28 to 19. I would think that a lot of them have their fingers on the trigger to cover their positions and lock in their profits.

To: Steve Lee who wrote (69455)	10/22/1999 11:03:00 AM
From: rudedog	Respond to of 97611

Steve - I won't be laughing either way I didn't intend that in a mean way - just that things have been pretty grim around the old CPQ clubhouse this year and we should try and have some fun while we put our capital on the bonfire. If you want to share the reasons you are optimistic about Compaq, I'm more than happy to listen. I have listed a lot of that reasoning on the thread. But let me try and summarize. I spent some time with what was then the senior CPQ management in 1995 and 1996 as a consultant on enterprise strategy. They rightly predicted the market shifts in both desktop and server products. Their plan was to build the services infrastructure to allow them to move upscale, wrap their PC offerings with both infrastructure (such as software value add, better connectivity, home networking for the consumer segment, and cost of ownership benefits like automatic upgrade leasing programs in the commercial segment) while also developing the technical capability to go after the midrange server business, mostly with cluster products but also with larger SMP machines. I believe that they intended to buy some of the key high end technology and a services organization but otherwise build from within. They made a play for just the services part of DEC in 1996 but got rebuffed. They were well down the road to doing a deep technology sharing and business partnership with Tandem at that time. Enter Earl Mason and the whole picture changed. Gary Stimac, who had driven the wildly successful server business (as well as most of CPQ's big growth lines since the mid-80s including the first 386 programs) left a few months after Mason showed up, apparently after losing Pfeiffer's support over key business directions like inventory management and build or buy choices on the enterprise push. Mason also changed the internal metrics for management, going to ROIC measurement instead of product line earnings. I don't think too many people understood what they could do on a day to day basis to drive ROIC. I would date the downward spiral at CPQ from about that time, and tie it to the triumvirate of Pfeiffer, Mason and John Rose spending like drunken sailors instead of the very tight management which had characterized CPQ in the past. My direct involvement ended in 1997 so I don't have any firsthand knowledge of what happened later, but the Tandem acquisition was a surprise to me and the acquisition of DEC much more so. IMO the only way for CPQ to have kept to the original plan would have been to aggressively pare those operations down immediately after acquisition, but that's not what happened. So where are we now? The guys who did the original enterprise plan are mostly gone. The guys who screwed it up are gone. But the fundamentals of the industry over the next 5 years are still about the same, and CPQ is about the best positioned to reap the rewards from the shift we are undergoing, if current management can get their house in order and trim back the infrastructure they inherited from the previous regime. Their strengths - 1 - dominant market share in almost every market they are in 2 - great technology base in their core competency 3 - strong partnership with MSFT and improving partnerships with Intel and others, who see CPQ as the horse that will pull the Wintel cart most strongly. One should not underestimate the value of that position. 4 - effective cost management measures which at least so far have not hammered the top line. CPQ's revenues look good, and if they can cut the costs they will have pretty decent financials 5 - strong services team which can drive not only the high end solutions but the volume infrastructure. That asset has not yet been fully leveraged IMO but the recent reorganization aligns the services team correctly with the relevant product groups. 6 - strong and well-thought-out initiatives to leverage telco, financial and other verticals with a combination of existing account control (and best of breed technology) and introduction of lower cost components from the volume business 7 - successful shift away from the PC business as the dominant revenue generator while still maintaining leadership share The timing of CPQ's recovery is unclear to me but I have no doubt that the strategy will pay off long term. Likewise, the market seems to have no appreciation of fundamentals any more (if it ever did). But sooner or later it will happen, and CPQ's valuation will get to something like parity with their peers. They were pretty cheap (assuming you bought them recently) They were very cheap - the 1000 nov 22.5s were $30k, the 1000 jan 25s were a little over $60K. I made $80K earlier in the week selling Intel Jan 70 puts at 8, so assuming Intel stays above 62 I ought to be at about a wash on this position. I agree about buying low but when it dropped to 30 you could have used that argument, or at 25. I sold some of my position in CPQ earlier this year, some in January in the mid-40's and some in march in the 30's. I have not been tempted to buy any time this year - there were just too many ways they could have screwed it up. The management shakeup could have caused a mass exodus of good people. They could have gotten a fruitcake CEO. Capellas could have uncovered deep financial problems previously undisclosed. etc. etc. But none of that has happened - and I have increasing confidence that CPQ is back on track. The combination of things I heard from the recent European shows, anecdotal data, feedback from partners and my own gut feel based on the things the current management is saying tells me that they are on the road to recovery. I regard the recent withdrawal of IBM from the retail PC business and their warning about other business shortfalls as an opportunity to place a bet - the guy who correctly figures that out first wins.