OTOT - Paul,
The chart is volatile, plain and simple.
This stock has had a (good) number of crashes and recoveries. You're correct Paul in assuming I'm building (and have done so) a long-term position in this stock. I've gone through 2 of the last 3 splits and currently, post last split am averaged around 18. Between a lot of this, I've taken some profit. I am hurting from the last purchase because I bought some at 32, but I can still take some big hits. So here's where I see we are now and what my opinions are:
CPQ had already dropped from $37 to $25 (assume the information of after hour close Friday is correct), it is a 32% correction in two to three weeks, which means the effect of the bad news has been reflected in the stock price. E.g., INTC... the stock price spiked from $78 to $95 and drop back to $76 (after hour close when the bad news on Intel was announced), a 22% correction and stock went up more than $2 on Friday. So, I do not think CPQ will correct too much on Monday, since all the bad effect has already been built into the stock price in the past two to three weeks. The big money (with those privy to insider information already KNEW about this warning ten days ago) and are already out. They MAY be back at around $27 to $28. Look at the trading patterns last Thursday and Friday, 47 million shares, 37 million shares, and stock price did not drop.
So, On Monday, there maybe some emotional selling at the open, price may drop to $24,or $23, or EVEN $20. then the way I see it, the smart money will jump in, and small investors will also jump in, the price will jump back. Of course the stock price may drop all the way to $15, $10, but from a practical standpoint I don't think that will happen at all.
I'm not so sure I will buy any more however, until earnings are out.
On the positive side IMO, CPQ has been developing their networking business for the last 2 years. IMO, this is just an evolution of a successful company. In 1995 DEC was bigger than CPQ, but now is being bought buy them. Despite their warning on Friday, no company can assure stockholders of sequentially rising earnings. No company in fact can assure a positive quarter, since no one knows the future. If you look at CPQ's charts of earnings, assets, debt ratio, market capitalization you'll see that this is a firm that is well run and has its own game plan. The US is the only country that gives so much credence to quarterly performance that sometimes the long-term is sacrificed.
But, on the other hand, I believe this will "not" be just a 1 quarter problem, and then "nirvana". Mason, their CFO, and EP himself indicates at least 2 Q's.
I myself think all of 1998 is going to suck. If you're a short-term player or trader, I don't think this is the stock to play.
I attached one of the latest bits of info on the Q1 shortfall from an interview with Eckhard Pfeiffer.
On the other hand though, if "IF" this stock hits 20 or teens on Monday, IMHO it won't last long. This would be much, much too tempting. That is my GUT feel. Nothing behind it but gut feel. Anyway,
the EP transcript.
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Eckhard Pfeiffer Conference Call with Analysts Speaks Out On Q1 Shortfall
Compaq Computer Corp. Chief Executive Eckhard Pfeiffer spoke about the
company's sales and earnings shortfall for the first quarter in a conference call with analysts. Below are excerpts from the call.
Q: Could you characterize the revenue shortfall?
Pfeiffer: It is to some extent end user demand. We do not see the level of sales out
that we had anticipated in the first quarter. It is not a product issue. There is plenty of
product which is part of the cutback. We are not shipping into the channel more
product only to make the quarter...We want to be fully operational with our
ODM.(Optimized Distribution Model). It is not product. It is demand and inventory.
Q: You talked about having to clear the channel of inventory. Can you talk about
roughly where those levels are and what you need to get moved out?
Pfeiffer: We have been on a pretty steep ramp throughout the second half of last year
in essentially all product categories. That is obvious always in leading the demand curve
and then you just watch the demand curve and see if this stays in line or if it starts
spreading apart and you realize you have a problem. That is what we have been
experiencing during the first part of the year...February was the key month to watch to
make the judgment call, can we make it. As we saw more inventory in the channel we
decided to cut back here and stay on our channel inventory reduction plan.
Q: Can you give us any guidance on unit growth going forward?
Pfeiffer: Well the end user demand numbers I think everybody agreed going into the
year would be lower for 1998 than we saw in previous years. How the first quarter will
actually come out can not be predicted at this time. It is certainly less than ... what we
had in our internal plan. How it will play out for everybody else is obviously not
known.
Q: Have you seen any weakness in the server growth?
Pfeiffer: What we said in general applies really across most product categories really
pretty even.
Q: You expect a cautious outlook for the second quarter. To what extent are
dynamics affecting gross margins in q1 likely to extend into q2?
Pfeiffer: It would not be appropriate at this time to label this a one quarter issue when
we say we are driving the ODM to be at the model level by the end of the second
quarter. In addition, the signs of lower market demand can not be read very well at this
point. It remains to be seen whether additional pricing action (will help). As we have
seen, frequently in the past, (pricing action) creates new waves of demand. So we are
watching every signal we will be getting here and then we will have a better
understanding of the second quarter.
Q:Can you talk about the pricing pressure you are seeing?
Pfeiffer: The pricing pressure is obviously on the desktop side and the server side and
some of what we call the option area. The year over year number for North
America...that is likely going to be down.
Q: What type of pricing promotions are you going to do?
Pfeiffer: We don't want to signal pricing actions in detail nor the specifics of
promotion.
Q: How long do you think it will take to clear up these issues?
Pfeiffer: Well the programs will be underway real fast...We will have to see how this
works out.
Q: There are some conflicting signals out there relative to the demand picture...There
are some resellers indicating sell-through has continued healthy. Can you address that
issue?
Pfeiffer: We kept emphasizing that we are talking about the commercial segment of
the market and the channel that is predominately serving that. We see good growth in
our consumer business in North America and really in all markets around the
world...Our notebook business has been growing well. It is mixed and the main part of
what we are discussing here is North America commercial (systems).
Q: Are there any problems in terms of demand relative to plan or pricing in Western
Europe in the commercial business?
Pfeiffer: So far we have positive messages from Europe. We have stated we think
demand is good (there). It is a global market that quickly adapts to any product that
we do not ship to the North American channel.
Q: Are you willing to directly answer the question about what you believe is happening
in the overall end demand market including in the U.S. commercial market?
Pfeiffer: On the demand side, the signals are Intel made their
earlydisclosure...Everybody going into the year was talking about lower unit growth
than last year or previous years. That is a factor. How much of it in the first quarter is
not clear until the quarter is over. Our sales forecast certainly has been ambitious and
we have been growing share quarter after quarter. Obviously we keep doing that...We
will be more visable in the end user engagement. We will encourage our dealers to do a
lot more direct business on their web sites. Compaq will be more active on that end.
We will continue our aggressive market share strategy in the future.
Q: How much do you think the sub $1,000 market has started to bleed over on to the
corporate side?
Pfeiffer: I don't think it is a bleed over issue. It is a critical price point for the
consumer. On the commercial side it is the never ending striving for great entry level
product that will be and are below the $1,000 price. As long as these can be produced
at an acceptable margin then it exists in both segments of the market.
Q: Can you state that you are committed to the DEC deal as much as you were on the
day that you signed the definitive agreement?
Pfeiffer: The answer is clearly yes
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Regards,
Joe...
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