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

To: Roads End who wrote (20281)	3/7/1998 11:08:00 AM
From: Larry J.	Respond to of 97611

"Compaq adds name to list of bleak sales forecasts" (Mercury News, Saturday 3/7): Compaq Computer Corp. on Friday became the latest technology company to announce a spectacular stumble, warning that it would not make any profit in the first quarter because of an unexpected falloff in sales. But analysts said Compaq's problems appear to be unique and do not herald a major slowdown for technology companies. Compaq, the nations largest maker of personal computers, attributed the drop chiefly to sales to corporate customers in North America, its single biggest market. Competition, especially from direct marketing companies like Dell Computer, forced Compaq to cut its prices in February more than it planned. Even with those price cuts, sales last month slowed more than expected. As a result, Compaq estimated its sales in the first quarter would be about the same as the $5.3 billion it posted a year earlier. That would be a 28% drop from the fourth quarter of 1997. Analysts had estimated that Compaq would earn 35 cents a share in the first quarter, or $530 million. "We see the same thing happening in the corporate space that happened in the consumer spacee in 1997, when prices collapsed," said Matthew Sargent, an analyst with Computer Intelligence. Compaq, based in Houston, made its announcement after the stock market closed. In after-hours trading, its shares fell as low as $25 from its close of $27.63. Data from Computer Intelligence on sales through dealers in January, the latest available, show that Compaq has been cutting prices more than its competition has. The average price of a Compaq computer sold in January 1998 was $1789, a 16 percent drop from a year earlier. IBM, the No. 2 computer seller through dealers, saw a 6.5 percent drop, and HP had a 10.1 percent fall. "Is seems like Compaq is being overly aggressive on price to maintain their market share," Sargent said. Indeed, Compaq President Eckhard Pfeiffer said in a statement that the company intends to "expand our business and grow our market share" this year. Earl Mason, Compaq's CFO, argued that the company did reach too far in its production targets in the first quarter. "I'd like to think our team here has the right amount of humility," he said. "We are aggressive people and believe we can and will take share from our competitors." Declining prices hurt Compaq more than companies like Dell because it takes longer for a Compaq computer to reach the customer through its distribution system, meaning there is more inventory that loses value. Todd D. Bakar, an analyst withHambrcht and Quist, estimates that Compaq has 100 days of inventory compared with Dell, which has only 10 days. Compaq is only halfway through a program meant to reduce its inventory. On Wednesday, Intel Corp. said slack demand for microprocessors would cut its sales by 10 percent from its earlier forecast. And on Thursday, Motorola warned that its profits would be well below expectations. But analysts said Intel's struggles may reflect Compaq's problems, because many of Compaq's unsold computers carry Intel chips. Overall, analysts said they were concerned that many technology companies would be shaky at least through the summer. "The industry is having to price aggressively just to grow by 15 percent per year," Bakar said. He said that among computer companies, IBM is most likely to be hurt by the same phenomenom, as are disk drive makers. Mason of Compaq, however, said the company saw a quick end to its problems. "If everything works according to Hoyle, we should be in pretty good shape by the end of the second quarter, " he said. lj