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

To: Tim Wash who wrote (22508)	3/18/1998 10:59:00 PM
From: rudedog	Read Replies (2) \| Respond to of 97611

I think the reaction is more the combination of the inventory runup before announcement of the DEC acquisition, then the badly missed forecast. many folks on the street suspect that EP and mason, being pretty savvy guys, did not really screw this up this bad, something else is going on. Until they know what that is, they will steer clear. If CPQ management comes out with an explanation which makes sense given their behavior over the last 6 months, we could see a quick turnaround, especially if earnings perk up in 2Q. On the other hand, maybe they: 1) really did bite off more than they could chew and didn't watch the store - long term bad news for CPQ stock if they don't get earnings back on track 2) Really do have some hidden problems which they were trying to bury in the acquisition accounting fog - really bad news 3) Are trying to reduce the cost of the DEC acquisition by manipulating share cost to reduce the tax carry forward from purchase of good will. this is the 'grassy knoll' theory My personal opinion is that they developed the plan to drive the channel to get earnings (and share price) up before the dec negotiations, back in 3Q97 before the asian flu, and by the time the real sales picture emerged in 4Q they were already rolling down the runway, nothing to do but pour on the power and hope they got to takeoff speed. That's probably why Pieper (head of WW sales and marketing) and schraith (head of NA sales and marketing) both left in early january. When 1Q numbers started to come in they had to implement plan B. looking at the press release today on their current programs to move inventory, they must have been developing the backup plan even in december, CPQ is a big company and you don't put together comprehensive programs in a week or even a month, it takes a month just to get the announcements approved. which leads me to believe that there is probably a lot more to plan B and we may see some light in the next month or so.

To: Tim Wash who wrote (22508)	3/19/1998 12:29:00 AM
From: gc	Read Replies (1) \| Respond to of 97611

no, gtw and cpq are different. You have to ask yourself why CPQ'inventory kept building up? Was 4Q report outstanding given the fact it had stuffed its channel out of daylight? No, it was just an ok report. Then the answer is obvious: Because it can't compete. If that is the reason, then I wouldn't buy until they change their business model, regardless the stock price. Remember, if analyst's estimate is correct, they will earn $0.32 in 1998 which put their PE well over 70 at this level. This makes DELL's stock looks very cheap! Its PE is only 30.