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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: rudedog who wrote (85304)	12/14/1998 10:14:00 PM
From: jim kelley	Respond to of 176387

Dog, As I mentioned before I have not yet taken a position on those insider sales by either company. The CPQ cash flow question is very interesting and somewhat complex. I am not an accountant but I have been talking with a friend of mine who is a CPA about CPQ. Their latest 10-Q is 148 pages long and is somewhat daunting to analyze. A couple of points though. CPQ has set up several sources of credit. I believe they have a revolving credit line of about $4 B. In addition, they are setup to factor their receivables. Thus in all probability they should be able to get whatever cash they need to implement their restructuring plan. Their current tax rate is 26% due to a tax holiday deal they have with Singapore. This is lower than DELL's 30% tax rate. That should help them somewhat. They also have Deferred income taxes of $ 1,981 M which they apparently can use as a tax credit against earnings. This should greatly reduce their taxes on any earnings they may have this year. They have not had to write many checks for severance and restructuring that is contemplated in their plan adopted in June. It looks like as of 9/30/98 , CPQ has written checks totaling 110 M out of a total of $ 1,744 M. Thus they have to write additional checks for $ 1,644 M. This will further reduce their cash on hand. It also suggests that one reason for the delay in restructuring may be the impact of restructuring on the cash on hand. It makes the balance sheet look worse. Bottom line CPQ's prospects in the short run are helped by the tax writeoffs and hurt by the restructuring charges that are looming ahead of them. Their operating costs are currently way more than they should be for them to be competitive long term. They face the risk of competition with their channel via whiteboxes. It remains to be seen what the outcome of their conflict with the channel will be. Meanwhile, DELL goes on with its business during an especially strong Christmas quarter. Regards, Jim Kelley