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To: rudedog who wrote (85640)	12/16/1998 12:25:00 PM
From: Chuzzlewit	Read Replies (5) \| Respond to of 176387

Rudy, I learned long ago to ignore earnings (because they are so easily manipulated -- especially when the company is acquisitive) and focus on cash flow. Jim Kelley flagged the fact that Compaq appears to have a looming cash flow problem as evidenced by their comments and projections in their most recent 10-Q. I agree with his concern. Cutting prices (unless supported by lower costs and better payment terms) exacerbates the problem. If they can pull of the transition to direct sales it will provide some cash flow relief, but I think that transition will be very difficult. I look for some major financing news from Compaq, and when that hits the wires the stock will be crushed. Don't be fooled. Watch cash and short term investments like a hawk. If you had done that you would have seen the problems with OXHP materializing before the "analysts" caught on and the company 'fessed up. [That's a joke -- they never caught on until after the fact] TTFN, CTC

To: rudedog who wrote (85640)	12/29/1998 5:56:00 PM
From: Gabriel008	Read Replies (1) \| Respond to of 176387

Rudedog, could you comment on this story from street.com re CPQ; Top Stories: Compaq Investors May Have Jumped the Gun By Eric Moskowitz Staff Reporter 12/29/98 3:13 PM ET It took IBM (IBM:NYSE) the better part of three years to successfully roll out its services business, but now that unit's success is one of the main reasons Big Blue is back in Wall Street's good graces. Compaq (CPQ:NYSE), which has seen its stock struggle this year, has recently co-opted IBM's strategy, rolling out a business-services strategy of its own. Investors have already decided this new plan will be a smashing success: Compaq's stock is up over 70% this fall. But shareholders may be jumping the gun: The company is late to the game and the strategy itself will take a long time to implement. Last year, the leading PC seller came to the realization that it wouldn't be able to maintain its current five-year revenue growth rate of 29% by just selling personal computers. So it went out and bought two large business-services outfits -- Tandem and Digital Equipment -- and decided to take on one of its most bitter rivals, IBM. These acquisitions gave Compaq the ability to sell customers not just a PC but also a full suite of products and services, such as PC servers, on-site technical support and product upgrades. Analysts have begun cooing about Compaq's services opportunity, and its stock has moved northward, climbing 31% this month alone. "Big technology acquisitions and their integration have a history of being tough in the first year or so," Morgan Stanley Dean Witter analyst Gillian Munson explains in a recent report. "We are betting that Compaq will execute in 1999." Munson, whose target price of 40 for the company has already been eclipsed, has an outperform rating on Compaq. Her firm hasn't performed any recent underwriting for the company. But before the Street gets ahead of itself on Compaq, it needs to look at the company's services strategy. "That's just it," says Craig Johnson, a principal of the Pita Group consulting firm, which has done no consulting work for the company. "Compaq hasn't yet articulated its services strategy, and Wall Street is already counting on it." Johnson argues that Compaq needs to prove to investors that it can go out and get accounts and sell products as well as IBM does. Big Blue's services business makes up 28% of the company's total revenue. That's $5.8 billion in its most recent quarter -- no wonder Compaq CEO Eckhard Pfeiffer desperately wants to get into this game. But first Compaq needs to finish building out the division, which is being led by group general manager of Compaq Services John Rando. Rando wasn't available for comment. Compaq spokesman Alan Hodel says the company will better articulate its services strategy once Compaq begins a new fiscal year with DEC and Tandem in the fold. Services, he says, are already ramping strongly. In its third quarter, services revenue jumped to $1.5 billion in 1998 from $121 million in 1997. But that jump is due more to the DEC and Tandem acquisitions than anything else. This process to diversify from PCs to servers will take time and, even more significantly, money. Operating margins may be reduced, says Johnson. "Wall Street would be better off waiting to see how Compaq controls costs first," he says. Another element to consider is that while there is opportunity in services, there also are a lot of experienced competitors out there. Goldman Sachs just upgraded veteran services provider Unisys (UIS:NYSE) to its recommended list from a market outperform due to several recent contract wins (from the likes of UBS/Swiss Bank and the state of Pennsylvania) and increased revenue visibility. Goldman has done no underwriting for Unisys. Then there is IBM. "IBM is No. 1, you need to put them in their own special category," says Dan Niles, a BancBoston Robertson Stephens analyst who doesn't follow IBM but has a strong buy rating on Compaq. Niles says that Compaq is only now busily adding a lot of the pieces that IBM already has in place. Although Compaq has acquired one of the world's best services organization in DEC, he doesn't believe the integration will begin paying off dividends in terms of growth until mid-1999. His firm has done no recent underwriting for Compaq. "The beauty of this services business is that while the margins aren't great, the growth rate is, and the Street loves a good growth rate," says the Pita Group's Johnson. For a company that has been against what Big Blue represents for so long, it's ironic that Compaq now wants to replicate part of IBM's business model. This is nothing new, however, for tech companies, which know that if you can't beat 'em, copy 'em.