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Technology Stocks : Intel Strategy for Achieving Wealth and Off Topic -- Ignore unavailable to you. Want to Upgrade?

To: Stonehenge who wrote (17966)	3/1/1998 1:13:00 PM
From: Dom B.	Read Replies (3) \| Respond to of 27012

Good morning, Roy & All...Warn: a long post.. trusting that everyone is having a fine Sunday... OTOT---CPQ---Jan. 30, 1998 - "..After reviewing the income statements of CPQ & DEC, as well as our forecasts for the coming year, we concur with CPQ's statement that by the 4th Q, the deal will be accretive with further accretion coming in 1999. On that basis, we have increased our EPS projections to $1.74 for FY98 and $2.17 for FY99. The pro-forma combination of CPQ & DEC for calendar year 1997 indicates a revenue base of $37.6 billion. This would place CPQ in the number 2 slot behind IBM in terms of market share in the tech business. We estimate that 83% of this revenue come from products (primarily hardware) with the remaining 17% from computer services. Gross margins were 29.5%. Our estimate shows that the difference between product and service GMs was slight, with product GMS at 29.6% while servie GMs are estimated to be 29.1%. Operating expenses represented 21.1% of sales. In our view, this is the area that will need the most work. For CPQ alone, operating expenses were 15.3% of sales last year. The combined companies would have had a tax rate of 29.5% in 1997. DEC has been paying a very low tax rate for the past couple of years due to a large amount of NOL carry forwards. This is expected to continue to benefit CPQ after the merger takes place. Net income for the combined co's would have been $2.3 billion with EPS of $1.32, assuming an additional 150 million CPQ shares issued. That's dilution from CPQ's fully diluted EPS of $1.35. Prior to the merger announcement, our 1998 forecast for CPQ had assumed a revenue growth of 22%, further GM improvements, particularly on the service side and good cost controls in operating expenses. For DEC, our model had assumed 3% revenue growth, with good growth coming in storage products and servers, along with improvements in workstation sales. The sale of the networking business would limit total revenue growth. In addition, the better valuation of of the dollar versus some of the European currencies would also provide better revenue gains in this part of the world. We had also been assuming GM gains for DEC of 80 basis points, most of which would be coming on the product side. SG&A spending is also expected to remain under tight control, in the G&A area. When we combine these two models and assume a tax rate of 30%, as well as an additional 150 million shares, we are coming up with EPS of $1.74. We expect to see accretive EPS in both the second and fourth Qs with further accretion continuing into 1999. In that year, we are projecting EPS for the merged company of $2.17. CPQ's purchase of DEC will certainly be meeting its goals of becoming one of the top three tech leaders in this country as well as reaching its target of $50 billion in revenues before the year 2000. However, the company is taking on a certain amount of risk with the DEC merger. Accordingly, we expect shares to receive somewhat lower valuations in the coming months than this stock has received recently..." c. Vicker STock Research.(212)425-7000 (Emphasis, mine) Roy, recent announcement of DEC's spending freeze, you think CPQ is on track? And SB's inventory channel thingie is smoke screen? Comments pls? //dom BTW, I am only a subscriber to Vickers...this is a sellers' market, buyers beware...trade accordingly... My granpappy wanted me to be a jesuit priest...hehehe