Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Elwood P. Dowd who wrote (94036)	12/8/2001 10:37:05 AM
From: Elwood P. Dowd	Read Replies (3) \| Respond to of 97611

Compaq-HP Merger Doubts Deepen By Caroline Humer NEW YORK (Reuters) - Compaq Computer Corp.'s (NYSE:CPQ - news) future as an stand-alone company will be staked once again to the downtrodden personal computer business if its merger with Hewlett-Packard Co. (NYSE:HWP - news) is scuttled, an uncertainty that could weigh on its share price in the coming days, analysts say. The largest single shareholder in HP said it would oppose the proposed $25.2 billion merger of the two computer companies, a major setback analysts said could kill the deal. Shares in Compaq fell more than 12 percent in after-hours trade in response, and analysts said the growing risk that the merger could now unravel would force investors to re-examine its relative strengths as an independent operation. The David and Lucile Packard Foundation, which holds about 10 percent of HP's stock, said it had made a preliminary decision to vote against the merger, meaning that all the children of HP's founders, who control roughly 18 percent of its stock, have turned against the merger. Compaq officials declined to comment on developments beyond a joint statement issued with HP saying the management of both companies continued to support the merger, which they argue would create a global computer and technology services powerhouse. Facing extreme competition in the personal computer business from Dell Computer Corp. (Nasdaq:DELL - news), which overtook Compaq earlier this year as the No. 1 maker of PCs, Compaq needed the merger with the more diversified Hewlett-Packard to offset its exposure to PCs, analysts have said. Shares in Compaq fell to $10.01 on Instinet Friday, down from a regular session close on the New York Stock Exchange (news - web sites) of $11.32 and erasing a week of gains for the shares on the back of stronger hopes for economic recovery and a rally in technology shares. Bear Stearns analyst Andrew Neff cautioned in November after shareholders began speaking out against the deal that Compaq could trade down to under $7 if the merger were to collapse. But in the past few weeks analysts have started to become more positive about Compaq, saying that it stands to benefit in part from better holiday sales. Lehman Brothers analyst Dan Niles said he was not concerned about the No. 2 personal computer maker's ability to succeed if the deal falls apart. ``We think Compaq will do okay,'' he said. ``Our take on it has been that it's a $10 to $11 stock without the merger.'' Niles last week raised his target price on Compaq, saying that European demand was strong, that consumer segments had bounced back and that key corporate customers were standing by the Houston-based company. COMPAQ SAYS STRATEGY WORKS While a Compaq spokesman declined to comment on the company's potential independent strategy on Friday, earlier in the week a company executive had said the company was on track. ``I think Compaq has a great strategy and if there were no HP we'd still have a great strategy going forward,'' Compaq executive vice president of global business units Michael Winkler said in an interview. ``While we look like we may be somewhat beleaguered from a financial standpoint, the fact is we have generated positive cash for six consecutive quarters,'' he said. Winkler said, Compaq is further along in switching to a direct sales model for retail that will mirror Dell's. As part of that move, he said, the company's inventories of PCs will decrease as it moves production from its own factories to those run by an outside company. ``We've been reinventing our business model on the volume model in the PCs and that's only starting to come to fruition with the plant closings, so I feel good about the Compaq business irrespective of HP,'' he added. This summer was particularly tough for Compaq, which lost $120 million in the third quarter compared with operating earnings of $532 million in the year-earlier period as aggressive price cuts hurt margins. The weak demand that exacerbated those losses is not expected to change soon. The personal computer industry is due to have its first annual decline in revenues in 2001 since the mid-1980s and most PC executives aren't even considering a recovery in demand until the second half of 2002. Because of these issues, some investors are waiting for Compaq's shares to drop further before they buy. John Buckingham, the co-manager of the Al Frank Fund at Laguna Beach, California-based Al Frank Asset Management, said he would consider Compaq to be a buying opportunity within a couple of dollars of its current levels. ``I still like both companies on an independent basis,'' Buckingham said. HP shares rose to $25 on Instinet Friday in reaction to the Packard foundation statement, up from $23.52 on the New York Stock Exchange.