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

To: Harry Landsiedel who wrote (24543)	4/17/1998 11:14:00 PM
From: rudedog	Read Replies (1) \| Respond to of 97611

I can't add much to john's excellent analysis but do have a few comments. IBM's service revenue is depressed to some extent because of a long standing practice of including service contracts at cost for a range of bundled 'systems' sales. Execution on these contracts is charged at cost to the hardware group, so overall service margin is depressed. I believe that without these cross charges (i.e. if the hardware groups paid full cost for the services) the service revenue would be closer to 30%. Likewise the software margins are depressed for the same reason, but start so much higher that they still look good. Apparently IBM has some accounting goals that make them want to maintain HW margins at the expense of the other groups, maybe percent R&D (since service has no R&D). DEC has good margins for services, around 30%, so this should help keep CPQ margins up. Someone told me that Mason said that margin targets would remain in the 26 - 27% range after the merger was complete (apparantly to the analysts this week) but I couldn't find a reference anywhere.