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

To: MeDroogies who wrote (96773)	4/3/2002 9:55:51 AM
From: Elwood P. Dowd	Respond to of 97611

Merrill's Milunovich EnterpriseHardware by: skeptically 04/03/02 09:49 am Msg: 117598 of 117600 Comment Enterprise Hardware 3 April 2002 Steven Milunovich, CFA First Vice President Larry Tankel, CPA Jay Shows Enterprise Hardware First Quarter Earnings Preview Reason for Report: Earnings Preview Highlights: • The first quarter was a struggle for Enterprise Hardware vendors though most should come close to consensus expectations. Hardware results reflect seasonality, and 1Q is the softest quarter of the year. • Making the quarter even more of a nail biter is our sense that users held off even longer than usual. The quarter should be quite back-end loaded with up to 60% of revenue coming in March. • Specifically, we hear that Sun’s business improved in the last 1 ½ weeks so that Sun may meet its goal of up revenue sequentially. Our guess is that EMC, which had an awful first two months, may have seen a decent end-of-quarter push as well. We have adjusted our EMC estimate down to a $0.05 loss on $1.3 billion in revenue. • We are confident in IBM earning the consensus $0.85 per share, but revenue could be a touch light. The amount and composition of services bookings, which we expect to be in the $12-15 billion range, will be important in supporting the company’s expected double-digit 2H services revenue growth. • HP has problems in various areas, with reports of shortfalls in services and computers. On the other hand, we hear reports of printer strength. The stock should be more impacted by the deal vote in the short term. • NCR and Unisys should about match estimates. Unisys CEO Larry Weinbach has said that tech spending is meeting his expectation. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ >HP (HWP, $17.90, C-2-2-7) HP doesn’t report until mid-May. While the timing of the merger with Compaq remains uncertain, we believe that there is a strong likelihood that the deal will close before the end of HP’s F2Q on April 30. This could obfuscate the assessment of the quarterly results and shift investors’ focus to progress with integration efforts. CEO Carly Fiorina says the company did not pull out the stops to make last quarter so profitable; F1Q will be a good test. For the quarter ending April 30, we expect standalone HP to earn $0.24 per share on revenue of $10.9 billion, down 4% sequentially. Consumer PCs and home printers should drive the sequential declines as seasonal weakness in these businesses is accentuated by the strong holiday season experienced last period. Services provided the first proof point of merger-related weakness as a recent internal memo (leaked to the Dow Jones Newswires) from Ann Livermore noted incoming services order levels were soft and the potential distraction from the proxy battle was having an impact on employee productivity. Services represents less than 15% of total HP revenue with annuity-like support and outsourcing services contributing 75% of services. The more volatile consulting business accounts for less than 4% of HP’s total revenue mix. We do note, however, that services growth has slowed in each of the last four quarters. A subsequent Wall Street Journal article suggested another sign of weakness in HP documents showing February sales of computer related hardware to corporate customers down 19% year over year. This could suggest some modest downside risk to our expectation for 3% sequential growth (-13% year over year) in Computing Systems. HP’s acquisition of Indigo closed in late-March and is expected to add 1 point of growth to business printers for the quarter, expected to decline 9% year-over-year. Word from Canon is that HP is seeing improved LaserJet performance in Europe.