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Technology Stocks : Comdisco, Inc. (NYSE: CDO) -- Ignore unavailable to you. Want to Upgrade?

To: SOROS who wrote (666)	5/6/2001 5:32:33 PM
From: Glenn Petersen	Read Replies (1) \| Respond to of 689

From RedHerring.com: "So our advice to investors would be to stay away. There are plenty of technology stocks that are due to bounce back as the outlook for the sector improves. Comdisco, however, is not one of them." redherring.com Comdisco dances around the idea of selling By Lisa Meyer Red Herring May 7, 2001 Comdisco's (NYSE: CDO) conference call on Thursday was short -- but not in the least bit sweet. The company, which rode the Internet wave on a strategy of receiving warrants for startup companies to which it leased equipment, gave the sour facts, but no future guidance. There wasn't even a chance for anybody to ask questions. That's too bad, because speculation is increasing about the ailing Illinois-based technology services company, which has failed to offer any forward-looking commentary for about six weeks. Comdisco hired investment bank Goldman Sachs and consultants McKinsey & Company last month to help review its "strategic alternatives" -- corporate jargon that often means a company is for sale. And considering that Comdisco shuttered its digital subscriber line (DSL) subsidiary, Prism Communication Services, in October and exited the network services business in January, it's reasonable to suspect that more assets will be sold -- perhaps even the whole company. It will not be easy for Comdisco to survive on its own. Due to problems with its balance sheet, the company's bonds have plunged to junk-bond status. That makes it infinitely more difficult for Comdisco to raise new money from the public debt markets. As a result, the company recently drew $880 million from loans to help meet about $825 million in commercial bond obligations. During its second quarter, Comdisco reported a net loss of $54 million, or 35 cents per share -- a far cry from its net earnings of $43 million, or 26 cents per share, for the year-earlier period. "It has become apparent during this review that growth and profits of our core business have been severely challenged by costs and availability of funds, as well as structural costs," Comdisco's new CEO, Norman Blake, said during the conference call. Due to these current liquidity problems, Comdisco announced on Thursday that it was suspending the payment of quarterly dividends to shareholders. Not a good sign. So how did everything go wrong for Comdisco? A GLORIOUS PAST, A MUDDLED FUTURE Not too long ago, Comdisco basked in the wealth of the technology boom, sporting a stock price of $53 on the Nasdaq's heyday of March 10, 2000. On Friday, the stock was worth just $2.96 a share, a 94 percent decline from its peak. It is not surprising that Comdisco's fortunes rose in tandem with other technology stocks, because part of the company's business model included investing in venture capital-backed companies. Formed in 1987, Comdisco Ventures provides leases, loans, and direct equity financing to emerging companies. The leases of equipment and loans are sweetened with warrants that compensate Comdisco for offering these services at lower costs. For a majority of the company's investments, the loans and leases are paid back quickly. But 10 to 13 percent of Comdisco's investments are direct equity stakes in companies, according to A.G. Edwards analyst Mark Jordan. "It's not a bad business, but it can't be the dominant source of revenue for a company, because the market is cyclical," says Mr. Jordan. "Comdisco ran into trouble because it made its venture business too large relative to the size of the company's other earnings segments." When you look at a list of a few of Comdisco's customers during the last three years, it's easy to understand why the company is in trouble: Ariba (Nasdaq: ARBA), Ask Jeeves (Nasdaq: ASKJ), Copper Mountain Networks (Nasdaq: CMTN), Corvis (Nasdaq: CORV), and NorthPoint Communications (OTC: NPNTQ). These companies all have their own tales of economic woe. And since Comdisco lends to and invests in technology firms, the sector's problems hit the company especially hard. "As the technology sector declined, we saw a significant number of our customers declare bankruptcy or shut down their operations during the quarter," Comdisco's CFO John Vosicky said in the conference call. "As a result of that, we wrote off $100 million in receivables." Mr. Vosicky added that in reaction to this deterioration, Comdisco added $206 million in reserves during the quarter, bringing the total up to $210 million. In January, Comdisco suspended new commitments in this business. WHAT NOW? Now Comdisco is faced with the high likelihood that it will have to sell off even more of its assets or put the whole company on the auction block. Despite its current troubles, not all of its business segments are suffering. Its services, or disaster-recovery, unit and its equipment-licensing business are stable. For the services division, Comdisco brags of such customers as Hewlett-Packard (NYSE: HWP), Sun Microsystems (Nasdaq: SUNW), and Hitachi Data Systems (NYSE: HIT). As part of the licensing business, Comdisco buys, sells, and leases new as well as used PCs, workstations, servers, printers, and other desktop-related equipment. According to Mr. Vosicky, licensing earned $11 million and services earned $7 million this quarter before taxes. Mr. Jordan predicts that Comdisco will try to sell parts of or all of its licensing division and focus on services. The most likely bidders for the licensing division would be competitors like IBM (NYSE: IBM) and General Electric (NYSE: GE). And if the company were to try to sell the services business, IBM and SunGard Data Systems (NYSE: SDS) would be natural fits. Although Comdisco said it had $534 million in cash at the end of its latest quarter, it's unclear how long that will keep the company afloat. And even though it may succeed in selling some -- if not all -- of its assets, it seems unlikely that anybody would pay a big premium. So our advice to investors would be to stay away. There are plenty of technology stocks that are due to bounce back as the outlook for the sector improves. Comdisco, however, is not one of them.

To: SOROS who wrote (666)	5/27/2001 4:14:03 PM
From: Glenn Petersen	Read Replies (1) \| Respond to of 689

From the current issue of Forbes: The adage "shirtsleeves to shirtsleeves in three generations" used to describe the rise and fall of family fortunes. In the Internet age, two generations is enough. forbes.com Greek Tragedy Nicholas Pontikes oversaw the swift demise of his dad's 30-year-old computer leasing firm. Here's Comdisco's sad tale. Kenneth Pontikes must be cringing in his grave. Seven years after the founder of Rosemont, Ill.-based Comdisco died of colon cancer, his once high-flying computer leasing company is now so crippled that it will likely be wholly or partially sold off. About $1 billion of the company's $3.5 billion publicly held debt, now rated as junk, is due by fiscal year-end in September, according to debt-rating service Fitch. Comdisco will be hard-pressed to repay the loans, as it had only $468 million of cash on hand as of Mar. 31 and generated only $650 million in cash after capital expenditures over the preceding six months. The company just laid off 250 people, or 8% of its staff, suspended its dividend indefinitely and hired McKinsey & Co. and Goldman Sachs to decide its fate. Shares trade at $2.40, down 96% from their high in early 2000.The Pontikes family has seen the value of its various Comdisco trusts fall from $2.2 billion to $96 million. Condign punishment: The demise was mostly the fault of Pontikes' 36-year-old son, Nicholas, whom the board installed as chief executive in January 1999. Pontikes resigned last December, but still sits on the board. In his last year as chief Comdisco lost $67 million on revenue of $3.9 billion, down 7% from the previous year, thanks to losses from a failed business unit. Comdisco's swift fall from grace is the result of unchecked decisions by Pontikes. Perhaps fueled by a need to outdo his father's success, he set about transforming a fairly conservative computer leasing firm into a bold Internet player and provider of high-speed Internet access through digital subscriber line technology. The ideas seemed swell at the time, but Pontikes' timing was awful, coming right before both the Web and the DSL industry collapsed. Pontikes (who would not comment for this story) fit in well at the jock-laden Comdisco. A varsity football and tennis player in high school, he dropped out of the University of Illinois his junior year to join Drexel Burnham Lambert. After a stint at buyout firm Blackstone Group and a failed startup of his own, he joined Comdisco in 1992. Two years later his father died, but not before expressing a wish that Nick get the top job when he was ready. The board, dominated by Ken's old pals, installed Comdisco veteran John F. Slevin as chief executive and chairman in the meantime. Nick Pontikes built a respectable résumé while waiting in the wings. As executive vice president he oversaw four divisions and helped increase disaster-recovery services--which protect companies from severe computer crashes--from 10% of Comdisco's earnings in 1993 to 33% by 1997. Slevin retired and eventually Nick Pontikes became chief at the age of 33. Following Ken Pontikes--whose memory still brings mournful sighs to former colleagues--could not have been easy. Nick, called "the prince"behind his back, couldn't emulate his father's leadership style. If Ken Pontikes relished debate, his son surrounded himself with yes-men. Ken fostered loyalty, whereas Nick's arrogance bred insecurity and resentment. Ken managed expenses as if they were coming out of his personal checkbook; Nick was a spendthrift in chasing growth. "Nick was strictly an investment banker. As head of Comdisco he plied his trade, listening carefully to the buzz and packaging his company to fit that buzz," says JamesSchrager, professor of entrepreneurship at the University of Chicago Graduate School of Business. It must be conceded that Nick Pontikes inherited a company in the process of a makeover. Comdisco's core leasing business had become irrelevant as computer prices fell and as corporate data processing centers were displaced by networks of PCs and workstations. Slevin had begun the process of moving the company into more diverse services such as asset management and network consulting. Under Nick Pontikes the changes accelerated. Just three months into his new role he boldly declared Comdisco's overhaul into a higher-margin service firm. He sold the mainframe leasing portfolio to IBM Credit Corp. for $485 million inMay 1999. He shocked the sales force by exhorting them to "fire" their leasing customers and push into a mishmash of tech services including an electronic marketplace, data storage and Web hosting. What most excited the ex-investment banker was Comdisco Ventures. This unit financed computer leases to early-stage companies in exchange for equity. Since its start in 1987, it had never invested more than $200 million in one year. But in 1999 Pontikes turned it into a venture capital firm, often forgoing equipment deals entirely. It invested $580 million, up more than threefold from 1998, nearly doubling again to $1.2 billion in 2000 buying pieces of firms such as Webvan, Living.com, Etoys and AskJeeves. For a while selling equity stakes in portfolio winners boosted Comdisco's earnings. Last year $246 million, or 62% of pretax earnings, came from nonrecurring gains from stock sales. Comdisco's stock soared and there were plans of floating a Ventures tracking stock. But then the tech bubble popped. The carrying value of Comdisco Ventures' holdings fell from $845 million last September to $26 million in March. Reserves for credit losses from lease deals to fledgling customers went from $46 million for the first half of 2000 to $244 million in 2001. A similar fate befell Pontikes' other baby, a DSL subsidiary called Prism Communications Systems. Comdisco bought Prism in March 1999 for $53 million and poured $478 million to expand Prism into 32 markets. But Prism ran into the same obstacles faced by other DSL players:balky technology, exorbitant customer acquisition costs and slow-footedness by regional Bells to hook up the service. Twenty months after Comdisco bought Prism, it shut off the spigot and Prism folded. When the board accepted Nick Pontikes' resignation in December, he publicly admitted that Comdisco needed a more experienced leader. Threemonths later Norman Blake, 59, took over. He had led turnarounds at USF&G and Promus Hotels, and hunkered down to assess Comdisco's assets. Blake, who would not comment for this story, has stated he does not intend to sellComdisco, but something must go to pay down the looming debt. There is talk that GE and IBM are putting in bids for all or part of the company. Among the prime assets are its equipment leasing portfolios and a massive data network supporting its disaster recovery business. The adage "shirtsleeves to shirtsleeves in three generations" used to describe the rise and fall of family fortunes. In the Internet age, two generations is enough