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

To: Nadine Carroll who wrote (11412)	12/16/1997 3:17:00 AM
From: Kai-Uwe	Respond to of 97611

I guess this is what all the hoo-hah is all about... That forecasted slowdown of $150 million of 1998 revenue surely has made a bigger impact within seconds of it being announced! K. Compaq (CPQ)- Lowering estimates 10:16am EST 15-Dec-97 SoundView Financial Group (Mark Specker) (FYE Dec.) F96 F97 F98 Curr. Last Yr. Ago Revenue ($B) 20.0 24.6 30.8 7.4 6.5 6.0 EPS 1.73 2.68 3.45 .84 .71 .63 Old Revenue ($B) 24.6 31.0 7.4 Old EPS 2.68 3.66 .84 Summary We are reducing our earning and EPS for CPQ in 1998. Revenue for the year goes to $30.8B from $31.0B, with $150M coming out of 1Q98. Our revenue reduction primarily reflect our continuing concern regarding CPQ's U.S inventories relative to expectations CPQ had previously set. EPS for the year falls by 21 cents as a result of both reduced revenue and higher expense assumptions we making. We believe CPQ will continue to aggressively expand its direct sales presence to serve "medium-sized" businesses. We have also reduced our worldwide PC market unit growth assumptions, primarily due to Asia-Pac weakness. However, we see very little incremental impact to CPQ given its geographic mix. Discussion * EPS for the 1Q98 goes to 73 cents from 80 cents. We are both reducing revenue and increasing sales expense for the quarter. Rather than building scale in the business, we believe CPQ will continue to expand its direct sales activity. We see this sales activity as positive to CPQ's long term growth. * We are accelerating our Y/Y price decline assumption (average 1997 vs. average 1998) from 1.3 percent to 4 percent reflecting both earlier pricing aggressiveness, and a $50 decline in our 1998 ending unit price assumption. Unit shipments are up 400K to reflect price elasticity. Share growth assumptions go from up 2 tenths to up 7 tenths to 12.5 percent for the full year 1998 against our revised unit market unit estimates. * We still consider our share growth assumptions conservative. However, we note that CPQ, having created the sub-$1K market, grew unit share substantially. Next year, other companies will follow CPQ's lead, making out-and-out share gain driven by low-cost consumer boxes somewhat more difficult. * We continue to be concerned about CPQ's inventory growth. In recent discussions with the company (IR), CPQ has continued to reinforce its position that its objective is 2-3 weeks of inventory in the channel, worldwide, by year-end. Bottom Line Our EPS and revenue reductions reflect some incremental concerns about CPQ's inventory levels, and our higher expense rate better models what we believe will be a continued push by CPQ for "higher-touch" service. At 16 times our 1998 earnings, CPQ's stock remains at the high end of its historic P/E range. Our revised PC market growth number (published today) and CPQ's market share growth requirements to hit its number within our model (less than one share point for the year) give us some comfort for next year's earnings. However, near term inventory levels remain a concern. Although sell-through commentary from CPQ and others remains positive, it is unlikely CPQ's stock can make substantial headway until 4Q sales checks turn decidedly positive.

To: Nadine Carroll who wrote (11412)	12/16/1997 7:33:00 AM
From: Yaacov	Respond to of 97611

Nadine Your very correct to say that CPQ may benefit from the Asian crisis rather than loose to it. I work in printed circuit boards manufacturing. We are importing a lot from South Korea, and since the crisis, we have been enjoying from the tough Korean competition to sell to us. The same guys that woudln't consider 2% discount two months ago, are now cutting the prices by 15 to 20%. What they need is the hard currency and increase in the export. If small fish like us can do it, imagine what discounts CPQ and Dell can get?