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: hpeace who wrote (8488)	11/3/1997 6:17:00 PM
From: Mike Chen	Read Replies (1) \| Respond to of 97611

Here's where they really take off: infoworld.com Sub $500 servers? Is that a collective oof? Mike

To: hpeace who wrote (8488)	11/3/1997 10:25:00 PM
From: Kai-Uwe	Respond to of 97611

This might add more fire to both of your sides of the debate: CPQ--ASIA PACIFIC IMPACT OVERBLOWN; GOOD SHOWING IN NOTEBOOKS DURING SEPT 02:35pm EST 3-Nov-97 Salomon Brothers (Richard Gardner) During a speech last Friday, Compaq chief executive Eckhard Pfeiffer said that Compaq had not been significantly affected by the financial crisis in Asia and that he did not expect that the company would be. We agree; the incremental effect of the recent currency crises on Compaq's revenue growth should be minimal in the near term. During the most recent quarter, Compaq derived 5.7% of total revenue from Asia Pacific and 3.2% from Japan. The company's largest markets in Asia Pacific, in order of revenue contribution, are Singapore, China, Australia, Korea and India. The devaluations in these countries have been less severe than those in Thailand, the Philippines, Indonesia or Malaysia. Japan Looking at each of these markets individually, Japan is the second largest PC market in the world (behind the U.S.) with annual shipments of approximately 8.5 million units. The Japanese market has been sluggish during 1997 due to general economic conditions and a consumption tax hike. The consumer market has been particularly hard hit, according to Japanese PC manufacturers, but the corporate market is not great either. Overall, the Japanese market is expected to grow between 5-10% in unit terms during 1997. Compaq has had a very difficult time increasing Japanese revenues during the past several years--the company's Japanese revenue has hovered between $200 million and $250 million for each of the last seven quarters and was up just 3% in the September quarter. China China is the sixth largest PC market in the world and the largest in Asia Pacific (excluding Japan) with annual shipments of about 2.5 million units (3.4% of the worldwide total). The Chinese market is growing approximately 40- 50% year to year in unit terms and has shown no signs of a slowdown. We expect that the Chinese market will continue to be one of Compaq's best opportunities in Asia Pacific. Currently, the market is dominated by two local vendors (Legend and Great Wall) which hold more than 50% share of the market, combined. Compaq had the number one market share in the Chinese market prior to last year, but local vendors have since taken that position from Compaq. Compaq has made management changes and logistics changes designed to correct its problems in China. IBM also has a relatively large presence in the Chinese PC market. Korea Korea is the seventh largest PC market in the world and the second largest in Asia Pacific (excluding Japan) with annual unit shipments of approximately 1.9 million (2.6% of the worldwide total). The Korean market is expected to be flat to slightly down in terms of unit shipments during 1997 due to the general economic conditions. Compaq is currently in discussions with Hyundai concerning a possible joint manufacturing and marketing agreement for the Korean market. IBM already has such an agreement with LG Electronics which has allowed the two companies to take 15% of the Korean market thus far during 1997. The two largest manufacturers in Korea are Samsung and Trigem, with 32% and 16% of the market, respectively. Hyundai currently has less than 8% of the market. While the Korean PC market is very slow, this does not represent a material change from forecasts prior to the currency devaluation. Australia Australia is the tenth largest PC market in the world and the third largest in Asia Pacific (excluding Japan) with annual unit shipments of approximately 1.4 million units. This is 1.9% of the worldwide total. The Australian market grew approximately 15% during 1996 and is still projected to grow between 12-15% during 1997. The Australian market has not suffered a large currency devaluation. India and Singapore India and Singapore account for 450,000 and 300,000 units of PC demand annually, respectively. This is just 1% of total global PC unit demand. Impact of the Devaluations on Components Costs With regard to the impact of the currency devaluations on the competitiveness of U.S. manufacturers both at home and abroad, we believe the impact will be minimal. Most of the high dollar components of a PC are denominated in U.S. dollars (microprocessors and disk drives). Therefore, any increases in the cost of these components caused by currency devaluations will affect both U.S. and local Asian manufacturers to the same degree. Monitors are the highest cost component manufactured in Asia (principally Korea, Taiwan, Malaysia, China and Thailand). According to our sources in Asia, many of the monitor manufacturers are in such poor financial health that they may not lower their prices to U.S. OEMs based on the currency devaluations. For these reasons, we believe that the impact of currency devaluations will be minimal with respect to both the competitive position of U.S. manufacturers in Asian markets and potential cost savings on components exported from Asia. Analysis Given the fact that the PC markets in China and Australia continue to grow at healthy rates and that the forecast for Korea was already low prior to the currency devaluations, we believe that the incremental impact of the crisis will be de minimis for Compaq in the short-term. Continued strong growth in China should make up for sluggish conditions in other countries, in our view. In addition, Compaq has seen rapid growth in Latin America during the past year. Latin America, where Compaq manufactures desktops and servers locally, now accounts for slightly less than 5% of Compaq's total revenue. Sales in Latin America were up 104% year to year during the September quarter. Finally, recent comments by Earl Mason, Compaq CFO, suggest that sales in Europe have been very strong during October. Net, we believe that recent concern regarding Compaq's exposure to Asia Pacific is overblown. If the economic crisis in Asia Pacific persists significantly longer than expected (several years), the effect could become material--Asia Pacific will be a key source of growth for Compaq during the next decade in our view. In the short-term, however, we believe that Compaq can offset weakness in Asian markets with good growth in the U.S., Latin America and Europe. Notebooks Computer Intelligence also reported that Compaq took the number one position in total notebook sales from Toshiba during the month of September. Compaq's U.S. notebook share was 29% during September as compared to Toshiba's 25% and IBM's 18%. This is the first time that Compaq has ever surpassed Toshiba in the U.S. notebook market. Toshiba has had problems during 1997 with excess inventories, service and support issues and its lack of a thin and light product offering. Compaq seems to be a benefactor of Toshiba's ongoing difficulties in the U.S. market. Notebooks (both corporate and consumer) currently represent close to 20% of Compaq's total revenue.