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To: jim kelley who wrote (38348)	4/19/1998 5:23:00 PM
From: rudedog	Respond to of 176387

Good bit of research. But I question a couple of things - DEC made 307M in Q1. Some of DEC's profit came from a sale of assets (networking business) but CPQ plans to sell off some DEC assets after the merger. Also, CPQ may have a better showing in Q2 - they haven't made quite the dire predictions they made for Q1 (YET!). So there's probably too much uncertainty to make a good guess on Q2 financials. If we just look at the 3 quarters we have real data for, we get 19484 K for revenue and the same 1245 for net income, yielding 6.3% net profit. If we throw in DEC's 1Q revenue and profit, we get 3191K added to revenue and 307 added to profit. This puts revenue at 22675K and net income at 1552 for net profit of 6.8%. Certainly a decline but not out of the ballpark. I think the picture will be much more clear by 3Q, when DEC is absorbed and the reality of the value of CPQ programs can be measured.

To: jim kelley who wrote (38348)	4/19/1998 7:12:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 176387

Jim, you said Incidently their reported gross margins gapped down to 18% from the 27% in the previous quarter. Could this be due to the impact of the Sub-zero? I've been asking myself the same question also, and I believe that there are two separate problems here. The first is that there are inventory problems associated with the higher end machines -- servers and power desktops from what I've gleaned in the press. Inevitably, inventory buybacks and obsolescence brings down margins, along with such promotions as free 14" monitors. But the second issue is whether the sub-zero is profitable. I, for one, have come to the conclusion that it is not a very profitable line (I guess gross margins of under 10%). My guess is that Compaq has been waffling on making the really difficult decision to jettison the channels for the higher end machines. They probably view it as painting themselves in a corner, because once comitted there is no going back. TTFN, CTC