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

To: Loki who wrote (15899)	2/1/1998 1:59:00 PM
From: Spots	Read Replies (1) \| Respond to of 97611

Ha, pinned. Ok, let me take your questions/comments from the bottom up. >> What is your estimate for Dec 1998 share price? Range? I don't have one, but if I did my predictive powers have been shown to be such that you wouldn't want to know it. What I do have is price targets for unloading some or lots of my holding. 2x (60) gets my half out, 4x gets me mostly out. Anytime in the next six years will do. <ggg> >> The question is...Has CPQ, in its acquisition of DEC, traded earnings growth (stock value) for revenues/complete product portfolio (stability)? How much? Short term? Long Term? If I could answer this one, would I spend Sunday's on SI (well, yes, probably). I will take a guess, but that's all it is. Yes, almost certainly in the year or so after completing the deal. There will be expenses that I just can't see being paid for by divesting various parts of DEC. These expenses will affect earnings growth adversely. Maybe more serious, revenues per employee at DEC are on the order of 1/4 those of CPQ, and profit/employee is much worse. I think this will be difficult to overcome, esp. since DEC's twice CPQ's size. Dec's margins are 2%, Cpq's 7.5%. Beyond that, I'm willing to believe until proven otherwise that CPQ has a plan. Of course ATT had a plan for NCR. >> What % CPQ net profit are you applying for you formula to figure future revenues? Are the shares outstanding constant? Finally one I can answer. I just assumed constant net profit margins, currently 7.5%, though the value didn't matter for what I was figuring, just as long as it stays constant. Of course, the value does matter. Also I didn't figure any dilution (including DEC). Dec would inflate all of my figures by about 10% since it dilutes CPQ about that much. Any future dilution would affect it also (or buybacks, of course). I didn't really intend to figure future revenues. My point was that you just don't have the same dynamics of growth for a company the size of CPQ now versus CPQ 6 years ago. I personally think it's unrealistic to expect the same percentage growth (in share price, I mean) when, under reasonable assumptions, that would require becoming the largest company in the world. Nor do I think it's necessarily desirable. As you said, at some stage successful companies trade off revenue growth for stability. CPQ can achieve my 4X for me by becoming a 100B (revenues) company while maintaining margins (make that 110B diluted by DEC). Bigger than IBM ever was, I think. I'll subscribe to that in my wishful thinking department. Regards, Spots