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: Andreas who wrote (27832)	6/18/1998 11:17:00 AM
From: ALTERN8	Read Replies (1) \| Respond to of 97611

"CPQ Doesn't Have Too Much Channel Inventory" -- Research Notes Subject: Compaq Computer Corp. (CPQ--$28)--NYSE Opinion: BUY ============= =============================================================================== Date: June 18, 1998 ------------------------------------------------------------------------------- Market Profile 52-Week Range $40-$20 \| EPS Growth Rate (3-5 Yrs.) 20% Avg. Daily Volume 13,785 M \| ROAE (LTM) 18% Shares Outstanding 1584.0 MM \| Debt to Total Capital 0% Market Capitalization $44,352 MM \| Book Value Per Share $5.98 Floating Market Cap. $43,021 MM \| Indicated Dividend/Yield $0.06/0.21% Institutional Owner. 59% \| Revenue (LTM) $24,998 MM Insider Holdings 3% \| _______________________________________________________________________________ Earnings/Share Fiscal Calendar Calendar 1Q/Mar 2Q/Jun 3Q/Sep 4Q/Dec Year Year P/E Ratio ------ ------ ------ ------ ------ --------- --------- 1997 $0.27 $0.30 $0.36 $0.42 $1.35 $1.35 20.7x 1998E 0.01A - 0.01 0.38 0.40 0.40 70.0 1999E - - - - 1.80 1.80 15.6 ------------------------------------------------------------------------------- Highlights: - There is confusion over how much excess inventory still exists in the PC reseller channel worldwide after 6/98 since the company seemed to have set a new target for 6/98. On examining some of the new terms and conditions CPQ laid out to channel partners only a week ago, we are satisfied that the job will be 80% to 90% completed by the end of 2Q98. Hence, we are comfortable with our Buy recommendation. ------------------------------------------------------------------------------- On the 6/11/98 conference call, management seemed to have changed their channel inventory targets from an earlier 2 to 3 weeks for desktops and 3 to 4 weeks for options and servers to 4 weeks overall on a worldwide basis. Some investors were quick to jump to the conclusion that CPQ's execution of its new distribution model is behind plan. The reason for the confusion was the very public commitment to go down to 2 weeks of channel inventory a year ago when CPQ decided to overhaul distribution as it moves to build-to-order (BTO) and configure-to-order (CTO). Those goals were set before consultation with its reseller partners, and management at the time felt the need to compete with Dell Computer (DELL - $85 11/16) for Wall Street's attention. After the debacle in 1Q98, the CEO set about to focus on reducing channel inventory (this time after much consultation with resellers) and changed its compensation for salesmen from selling into the channel to customer sales by its channel partners. The new terms and conditions were only set at the reseller conference some 10 days ago. For products built under its BTO and channel assembly program, it is phasing in increasingly tough price protection terms. From 5/15/98 to 6/30/98, distributors will receive 4 weeks of price protection. From 7/1/98 to 8/31/98, price protection will drop to 3 weeks. From 9/1/98 onwards, price protection will only be 2 weeks. Hence, the worst case ought to be 4 weeks of channel inventory by end of 2Q98 and 2 weeks by 12/98. Therefore, it is not materially different from its earlier goals, and we feel confident this operations problem is largely fixed. CPQ like IBM (IBM - $111) will be dealing with global and large accounts either as a prime or subcontractor to attract those major accounts that only want to deal directly with the suppliers and therefore would deal only with Dell previously. There is also a Direct Plus program to deal with small size companies that also want direct contact with CPQ. The VARs in this case will be paid an agent fee, with final terms to be finalized by 7/1/98. What is clear is that the distribution models of the indirect players are beginning to look a lot alike Dell's, and every major PC vendor will be using a mixture of direct and indirect channels of distribution. ===============================================================================