Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: John Koligman who wrote (27516)	6/11/1998 10:02:00 PM
From: William Hunt	Respond to of 97611

JOHN --- Another followup ---Seems CPQ is still talking ---Thursday June 11, 9:37 pm Eastern Time INTERVIEW-Compay CFO sees cuts beyond Dec INTERVIEW- COMPAQ (CPQ - news) CFO SEES CUTS BEYOND DEC By Eric Auchard NEW YORK, June 11 (Reuters) - Compaq Computer Corp.'s acquisition of Digital Equipment Corp. will weigh down the combined company's earnings for the remainder of the year, Compaq CFO Earl Mason said in an interview late on Thursday. Not until the fourth quarter can the massive costs of integrating Digital into the combined company be put behind Compaq and the merger act as a booster to earnings, he said. Mason made the comments after a meeting late on Thursday with Wall Street analysts in which he and other top Compaq executives spelled out the near-term costs and expected increased earnings power for the top personal computer maker. ''I told (analysts at the meeting) that, 'Victory in Q4 is a penny over whatever the First Call estimate is now,''' Mason told Reuters, referring to the 37 cent per share estimate that was the fourth quarter consensus among analysts. The company's per share earnings were 42 cents in the fourth quarter of 1997. Although the positive affect on combined earnings would be only minimal during 1998, significant, merger-related earnings gains will be visible by the first quarter of 1999, he added. Mason characterised the third quarter of 1998 as ''very much a transitional one'' in which few of the synergistic benefits of the merger would yet to be realised. In addition, Mason said Compaq will cut another 2,000 in existing businesses on top of the 15,000 staff it plans to cut at Digital Equipment. It was the first time a Compaq official had confirmed reports that 15,000 of Digital's 54,000 jobs will be eliminated. He said the cuts were likely to target the overlap between the finance organisations of Compaq, Digital, and Tandem, another company which Compaq acquired last year. He noted that Compaq, a company with $22 billion in 1997 revenues, has 800 finance staff worldwide. Digital, with around $13 billion in revenues, had another 1,900 in finance, while Tandem, with $2 billion in revenues, has 450 employees in finance functions. ''We can probably run the whole business with around 2,000,'' Mason said. The additional 2,000 job cuts will lead to further restructuring charges in the second quarter beyond the billions in dollars of charges for the Digital acquisition, he said. In a May 6 regulatory filing, Compaq said it would write-off $3.4 billion of the $8 billion price of acquiring Digital to cover research costs that have no value to Compaq. In addition, the filing said Houston-based Compaq planned to take from $1.5 to $2.0 billion to cover restructuring costs that would include the 15,000 Digital Equipment staff. Digital's shareholders ratified the acquisition plan earlier on Thursday and Compaq shortly afterward closed the $8 billion acquisition, which ranks as the largest ever in the computer industry measured in terms of the value of the deal. Measured by revenues, the combined Compaq's nearly $38 billion in revenues ranks it closely behind Hewlett-Packard Co. (HWP - news) as the third largest information technology company in the world. Still, International Business Machines Corp. (IBM - news) dwarfed both companies with $78.5 billion in 1997 revenues. -------------------------------------------------------------------------------- BEST WISHES BILL P.S Should eliminate taxes for a while

To: John Koligman who wrote (27516)	6/12/1998 12:41:00 AM
From: Brett Trueman	Read Replies (1) \| Respond to of 97611

John, companies often allocate as much of the purchase price as they can to purchased R&D. This leaves less for them to allocate to goodwill. The reason managers like this is that the purchased R&D is, in general, expensed immediately. The managers then get to take a big earnings hit all at once and wipe the slate clean. With goodwill, there is a charge to earnings each year until the goodwill is fully amortized, which can be as long as 40 years for some firms (although it's generally a lot less for hi-tech companies). So, I'm not surprised to see such a huge writeoff for purchased R&D. Brett