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

To: kenya who wrote (12460)	12/31/1997 6:05:00 PM
From: Nadine Carroll	Respond to of 97611

kenya, Wall Street thinks as you do: lower pc prices = lower margins = lower earnings. But don't forget that the high-end (and high-margin) server market is on fire, and Compaq holds the lion's share of this market. That is why Compaq's margins have been rising, NOT falling--about 23% last year vs about 27% this year. You are right that the growth rate in PC sales is slowing (though I know many businesses that would be very happy to be in a 15% growth market). However, the market trend is towards the "Big Four" computer makers (Compaq, IBM, Dell, and HP) and away from the others. Since the "others" currently have 60% market share, there is a lot of room for Compaq's market share to increase, which it has been doing. In the last three years, Compaq's world-wide market share has gone from approx. 10% to 12% to 14% this year. The third big fear--Asia--has yet to play out. But Compaq buys its components as cheaply as anyone (or cheaper--its volumes are larger) and the deflation in component prices is likely to help Compaq much more than loss of Asian sales will hurt it. Only 6% of Compaq's sales are to Asia, while the majority of its component purchases are from Asia. So the question becomes, is there any Asian PC manufacturer in position to manufacture, distribute, and market PC's cheaper and better than Compaq? I don't see one. Of course, Wall Street may compress Compaq's multiples anyway. Last spring it was trading at 15 x trailing earnings and 11 x forward earnings. But unless you can see some fundamental bad news, I would still continue to accumulate and hold this stock. Just MHO.

To: kenya who wrote (12460)	12/31/1997 6:30:00 PM
From: hpeace	Respond to of 97611

kenya, the price of a p166 dropped that much as you indicated but cpq's margins went from 22% to 27.5%. margins will continue to increase but maybe not 25% in a year plus. actually, I just finished several Info. Technology reports and most corporations are way behind in their upgrade programs.... way way behind. I suggest reading Info world, computer world, CIO, and publications from APICS and DPM, CASA. they will keep you up to date on info systems CPq's on press releases indicate they are making more money on 1997 p166 than the 196p166. In fact cpq may have lost money on the 1995 presarios for home. The key was their logistical change to allow many of the home units to be furished outside allowing inventory turns of 100x a yr. also, the components have dropped drastically. as far as stk price....this isn't a real crash. 79 to 57 isn't much of a pull back. this is normal consolidation and mostly locking in bonuses. remember cpq is a 70% institutional stk. I hope cpq starts to move away from that type of distribution. That is what the next 2-1 split may help. I would hardly call this a cpq stk crash(28%). I'm use to seeing 70-80% pullbacks on crashes. At most the street waits til april cpq earnings to rocket it to 90-100 by july 98.

To: kenya who wrote (12460)	12/31/1997 9:32:00 PM
From: Dwight E. Karlsen	Read Replies (1) \| Respond to of 97611

Kenya, if I may interject here, I'm sure you realize that the P166 you can buy today for $8-900 is not the same P166 machine as you bought last year for $1.6K. That is, this is not last year's box simply marked down. The current P166 machine has been redesigned from the case on up by CPQ for the sub $1K price point. Compaq willingly, knowingly, and purposefully designed this machine to sell for a specific price, for a profit. And contrary to what the talking heads quoted on C/Net believe, I suspect CPQ is making more than 3-4% profit margin on these machines. Now if CPQ had been forced to mark down the substantially original $1.6K boxes to keep up with other price-cutting competitors, then I would be worried. I just don't believe that Compaq product designers would aggressively go and lead the pack into a new price point if it meant significantly lower margins and cannabilization of other box sales. I'm looking at ads from CDW dated Jan. 7, 1997, and at that time CPQ was selling Presario Desktops with P120, P133, and P150MHz. Presario Mini-towers ranged from P133, P166, and P200. So, it's simply not comparing apples to apples to compare last year's P166 to this year's P166. I'm sure you realize all this, but it seems this issue comes up so often, I thought is was worth revisiting. DK