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

To: hpeace who wrote (11538)	12/17/1997 4:03:00 AM
From: Skeeter Bug	Read Replies (1) \| Respond to of 97611

steve, why is cpq's asp going in the toilet while dell's is going up?

To: hpeace who wrote (11538)	12/17/1997 6:37:00 AM
From: Kai-Uwe	Read Replies (1) \| Respond to of 97611

Some IBM news that reflects interesting trend comparison to CPQ. IBM is a major factor to be reckoned with, despite all the talk against them. They may well be big, slow, and overpriced, but look how quickly they were able to focus in the sub-zero sector! K. IBM: DEFENDING PRE-TAX PROFIT GROWTH WE FOUND TODAY'S JOURNAL ARTICLE ONE-SIDED 11:41am EST 11-Dec-97 Prudential Securities (D.YOUNG) ===================================================================== Ind. Div.: $0.20 Yield: 0.7% Shares: 978 mil. 52-Wk.Range: 113-63 _____________________________________________________________________ EPS FY Year P/E 1Q 2Q 3Q 4Q Actual 12/95 $ 5.51 20.1X $ 1.11 $ 1.48 $ 1.15 $ 1.83 Actual 12/96 $ 5.53 20.1X $ 1.11 $ 1.26 $ 1.22 $ 1.96 Current 12/97 $ 6.33E 16.8X $ 1.18A $ 1.46A $ 1.38A $ 2.34E Current 12/98 $ 7.20E 14.8X ===================================================================== * We found nothing new in today's Wall Street Journal article about the quality of IBM's earnings. We believe some important facts were overlooked. * For the first three months of 1997, IBM absorbed $0.34 per share in currency hits. For the full year, we expect this amount to reach $0.50-$0.55. Taking this into account, earnings growth looks much stronger than it first appears. * Another important operating factor that was not mentioned is restructuring charges and how IBM changed its treatment of them. This year, IBM will take an estimated $700 million in restructuring charges, about the same amount taken in 1996. The difference is that in 1996, IBM broke-out restructuring charges from its other SG&A expense. In 1997, the company is not breaking it out, leaving it an undefined part of operating expense. Excluding approximately $700 million in restructuring operating expenses in 1997 - we calculate IBM's EPS would be around $6.78/share versus our $6.33/share estimate. * Overall, we see good growth on a constant currency basis. There is a clear change in IBM's operating model. We expect 8%-10% top line growth and like growth at the pre-tax income level, thanks to expense management initiatives. We anticipate 15%+ sustainable EPS growth, backed by ongoing share repurchases and tax rate management. * IBM has transformed itself from a volatile GDP play to a more consistent recurring earnings producer. Compared to the market's largest industrials which are less profitable and growing more slowly, we believe IBM is undervalued by 50-65%. Compared to service and software peers we believe IBM is undervalued by 65%. Disaggregating IBM and comparing valuations unit by unit, we believe IBM is undervalued by 50% - our analysis indicates potential upside to $165/share. With the potential for sustainable EPS growth of 15%, fortified by less volatility and improved visibility, we think IBM is positioned to improve its valuation.

To: hpeace who wrote (11538)	12/17/1997 6:38:00 AM
From: Kai-Uwe	Read Replies (2) \| Respond to of 97611

And one more - last one for me today. Re: IBM again... K. INTL BUS MACHS: Mixed Bag 07:33am EST 11-Dec-97 Merrill Lynch (S.Milunovich) ACCUMULATE* Long Term BUY Reason for Report: Update on Quarter Price: $106 1/2 12 Month Price Objective: $125 Estimates (Dec) 1996A 1997E 1998E EPS: $5.56 $6.24 $7.15 P/E: 19.2x 17.1x 14.9x EPS Change (YoY): 13.3% 13.5% Consensus EPS: $6.18 $7.02 (First Call: 08-Dec-97) Q4 EPS (Dec): $1.97 $2.20 Cash Flow/Share: $9.04 $10.29 $11.28 Price/Cash Flow: 11.8x 10.3x 9.4x Dividend Rate: $0.70 $0.80 $0.94 Dividend Yield: 0.6% 0.7% 0.9% Investment Highlights: o Because IBM has been one of the strongest stocks in the server group the past four months, the stock's correction may continue. o Nevertheless, we would use IBM as a relatively safe haven. Our new 4Q estimate is closer to consensus; we expect IBM to manage through the turmoil fairly well. Fundamental Highlights: o We are modestly reducing our 4Q estimate from $2.26 to $2.20 (consensus is $2.17). We have reduced our revenue growth assumption though an 8-9% local currency gain is likely. o Issues include the strengthening dollar/yen, flat PC sales in Japan, and incremental pressure in disk drives and DRAMs. o Bright spots could include services, software, and servers. We think the tax rate will come in lower than most analysts estimate. Outlook for 4Q We are modestly reducing our estimate to from $2.26 to $2.20 to reflect continuing strength in the dollar and PC weakness in Japan. Could the quarter be worse? Yes, but probably not much. As always, there are puts and takes, and management has shown an ability to manage the bottom line. IBM is probably in better shape than many tech companies. 1. We have reduced revenue growth from 5% to 3%. Much of this reduction is due to currency, in particular the weakening yen. Japan represents 13% of IBM's revenue and the yen has depreciated about 8% this quarter. Currency should reduce top-line growth by about 6% versus 5% in 3Q, so we still expect a healthy constant currency increase of 8-9%. Currency should reduce EPS by perhaps $0.20-0.25. 2. PC demand in Japan is poor. A few quarters ago, IBM was growing at a 50% rate in Japan; this quarter we look for flat sales. Last quarter, IBM commented on NEC's move to an IBM-compatible architecture freezing the market. IBM is sold out in consumer PCs but that is rather small. We think the corporate desktop and server businesses are fine. Consequently, IBM's Asia/Pacific business is at some risk. Asia/Pacific growth in 3Q was 7% (15% local), a very strong performance. We hear expense measures are being taken to cushion any slowing. IBM still should outperform most vendors in the Far East. 3. Server sales could improve a bit. IBM is losing to Hitachi at Wall Street firms needing single engine performance but winning other deals. We expect MIPS growth to accelerate from 3Q's 35% growth, resulting in about flat mainframe sales. We think AS/400 demand is picking up but probably not enough to show growth (3Q sales were off about 13%). New RS/6000 enterprise servers should lead to a sales increase for the product line. 4. Disk drives and semiconductors should see some pressure but we wouldn't overstate it. IBM's drive growth slowed from 80% to 30% last quarter and further softening is possible. Nevertheless, IBM is outperforming the industry because (1) it is strong in servers and notebooks while pricing is worst in desktop drives, and (2) we think IBM's gross margin is twice the industry average thanks to its technology edge (MR heads). DRAM prices have collapsed, but DRAMs are only 10-15% of IBM's $2 billion merchant semiconductor business. 5. Services should remain a bright spot with a 20% gain. IBM is winning deals on its global capability and superior technology. Margins should rise over time. 6. Software is slowly improving. Although it won't be much evident in 4Q, IBM's software business should be strengthening. Host software is declining less quickly as users move to parallel sysplex. IBM is likely taking share from Oracle with DB2. Any improvement is important since software carries a mid-20s operating margin. 7. The tax rate should be about 30%; we think the consensus number of 32% is too high. Earnings quality should improve, however, with operating income growth of 5-6% after a flattish first nine months.