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

To: rudedog who wrote (29200)	7/15/1998 1:52:00 PM
From: William Hunt	Respond to of 97611

THREAD --- GENERAL INFORMATION ---SECOND HALF ---Dow Jones Newswires -- July 14, 1998 Compaq Inventory,Digital Integration Seen Overriding 2Q Net By Maria V. Georgianis NEW YORK (Dow Jones)--Compaq Computer Corp.'s (CPQ) second-quarter earnings report is largely irrelevant to analysts, who are more concerned about the computer maker's inventory and its integration of Digital Equipment Corp. The computer maker Wednesday is expected to report a break-even quarter on an operating basis as plunging average selling prices hurt profits. In the year-ago period, the company reported earnings of 30 cents a share on a split-adjusted basis. Compaq has slashed prices on its computers to clear out excess inventory in distribution. There are anecdotal signs that Compaq has been making progress in reducing this inventory, according to analysts' surveys of the computer maker's distributors and resellers. Compaq's inventory had ballooned as high as 10 to 12 weeks of product at the end of 1997. The computer maker's goal is to reduce that level to no more than four weeks. "I don't think anyone is going to focus on operating income this quarter," said Cowen & Co. analyst Richard Chu. Compaq's second-quarter results will include Digital's results from June 11, when Compaq completed its $9.6 billion acquisition of the company, until the end of the quarter. "If they were to report a clean number for Compaq that didn't include Digital, that's fine," Chu said. "The fact is this is a quarter that's going to include a lot of nonrecurring items." The analyst said he expected Compaq to take about $5 billion worth of charges in conjunction with its Digital acquisition in the quarter. Piper Jaffray Inc. analyst Ashok Kumar said he believes Digital added $1 billion to Compaq's revenue in the quarter. Without Digital, Compaq's revenue would have been flat with year-ago revenue of $5 billion, he said. "Digital masks Compaq's inefficiencies because you don't get a clear sense of whether Compaq's PC business is out of the woods," Kumar said. He estimated Compaq would have lost 5 cents to 10 cents a share, excluding Digital's results. Analysts said they will be looking for Compaq to make progress on integrating Digital into its operations. "Earnings estimates and expectations are driven more by the transitional issues (of integrating Digital) than by end demand (for Compaq's products)," said Sanford C. Bernstein & Co. analyst Vadim Zlotnikov. The company said it plans to lay off 17,000 people over the next year, with 15,000 of the cuts coming from Digital's operations. So far, Compaq has eliminated 5,000 of the jobs and expects to save $1 billion after eliminating all 17,000. "We think the company can show momentum as they make improvement on integrating Digital," said Bear Stearns & Co. analyst Andy Neff. Anecdotal evidence from corporate resellers and computer retailers that PC demand is picking up is leading some analysts to believe they must raise future earnings estimates. BancAmerica Robertson Stephens & Co. analyst Dan Niles said third-quarter earnings views may need to be adjusted north of the 6-to-8-cent-a-share range. First Call's consensus estimate for the period is 6 cents. Niles said strong June sales reports from retailers selling computers such as Tandy Corp. (TAN), Best Buy Co. (BBY) and Circuit City Stores Inc. (CC) indicate a boost in computer demand. The pick-up has been sparked by Microsoft Corp.'s (MSFT) Windows 98 launch, Intel Corp.'s (INTC) price cuts in June and new PC products, he said. PC demand has gone up "tremendously" since the end of June and average selling prices appear to be stabilizing, Niles said. He added that he anticipates Compaq will report a strong outlook, which will trigger analysts to raise 1999 earnings expectations. But even if PC demand stays strong, a boost in estimates of Compaq's third-quarter earnings depends more on how well the company deals with its Digital integration, said Sanford C. Bernstein's Zlotnikov. Zlotnikov added that average selling prices on computers still are declining, though perhaps not as steeply as earlier in the year. BEST WISHES BILL

To: rudedog who wrote (29200)	7/15/1998 1:59:00 PM
From: Roads End	Read Replies (4) \| Respond to of 97611

Rudedog...The analyst from Piper Jaffery attributed the 2 cent earnings to DEC otherwise there would have been a loss of 10 cents. I recall reading the the only earnings from Digital included in this quarter's numbers would be the 3 weeks following the close of the deal. If the analyst is correct Digital would have had to add $190 million, more than double last quarter's earnings whether it came from the last three weeks or the whole quarter. This just doesn't sound right does it? Steve