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: rupert1 who wrote (49951)	2/26/1999 12:25:00 PM
From: Elwood P. Dowd	Read Replies (3) \| Respond to of 97611

victor... according to the woman @ IR, EP had a meeting with CS first Boston yesterday afternoon and told them that January was slow and that the Q is backend-loaded. CS was the first with the word that revs would be down and the rest of the penguins jumped in, too. I just don't see CPQ recovering anytime soon and a major market downturn could take us into the 2os. Of course, there is always that very slim possibility that the Bonehead Twins will come with a positive news release regarding the AV spinoff or a content provider pact and that could be good for a couple + points. I'll bet you that CPQ is closer to 40 on 4/1 than it is to 50 on 4/1. will you take that bet??~El

To: rupert1 who wrote (49951)	2/26/1999 12:30:00 PM
From: Kenya AA	Respond to of 97611

victor: I'm sure you probably don't think this is important, but it's not "BB" (BancBoston) who cut CPQ earnings estimates - it was CS First Boston. The CSFB analyst is Michael Kwatinetz (sp?) who has an OK record on CPQ. The BancBoston analyst is Dan Niles who is the CPQ ax. I'll be interested to hear what Niles and Kumar, as well, have to say. K

To: rupert1 who wrote (49951)	2/26/1999 12:34:00 PM
From: Jeng Chiu	Respond to of 97611

Today's action coupled with the last 2 days prior would bring the stock down about 9 points from Tuesday. That's almost a 20% drop in 3 days. Even assuming earnings for 1999 have been reduced from $1.80/share to $1.70/share, the P/E is still very reasonable at approximately 20 x earenings. The real question is twofold: 1. Has the PC industry's revenue growth slowed down dramatically to only 3-5%. And how much of a decline is there in margins? 2. How forthright is the management about their prospects? It seems that CPQ has no idea what's going, on, as if this slower revenue growth has surprised them. How much more will shareholders endure before they've finally had enough. Management seems unable to adapt to this fiercely competitive environment. Throwing millions of $$ into glossy advertising does nothing to help sales. They need to get a clue and realize that the first step they need to take to help the company is for them to leave! Since that won't happen on a voluntary basis, shareholders need to unite and kick them out!

To: rupert1 who wrote (49951)	2/26/1999 1:30:00 PM
From: Aitch	Read Replies (2) \| Respond to of 97611

victor and thread, Here is the text: CPQ: Lowering Q1 EPS To $0.31 From $0.36 08:03am EST 26-Feb-99 Credit Suisse First Boston (Kwatinetz, Michael CREDIT SUISSE FIRST BOSTON CORPORATION Equity Research Americas U.S./Technology/PC Hardware Michael Kwatinetz 1-212-325-0751 Michael.Kwatinetz@csfb.com Andrea Sawicki 1-212-325-5127 Andrea.Sawicki@csfb.com Hans Roderich 1-212-325-6181 Hans.Roderich@csfb.com Jake Hindelong 1-212-325-6159 Jake.Hindelong@csfb.com BUY LARGE CAP Compaq (CPQ) Lowering Compaq Q1 EPS to $0.31 from $0.36 due to weaker-than- expected January Summary Lowering Q199 to $0.31 from $0.36, reducing 1999 to $1.70 Quarter appears to be more backend loaded causing us to lower our Q1 forecast to $9.8B from $10.0B Strategic Internet initiatives outlined by CEO Eckhard Pfeiffer appear well targeted Services business appears to be benefiting from integration, but risk of increased channel friction remains Maintain Compaq Buy Price Target Mkt.Value 52-Week 02/25/991 (12mo.) Div. Yield (MM) Price Range USD $41 $0 !Zero Divide 72B $50-23 Annual Prev. Abs. Rel. EV/ EBIT/ EPS EPS P/E P/E EBITDA Share 12/99E $1.70 1.75 24 89% NA $0 12/98A 0.30 137 507% NA 12/97A 1.27 32 119% NA 0.00 March June Sept. Dec. FY End 1999E $0.31 $0.39 $0.43 $0.55 Dec. 1998A 0.02 -0.14 0.07 0.42 1997A 0.25 0.31 0.31 0.40 ROIC (12/97) NA Total Debt (12/97) NA Book Value/Share (12/97) NA WACC (12/97) NA Debt/Total Capital (12/97) NA Common Shares 1755 EP Trend2 NA Est. 5-Yr. EPS Growth 15% Est. 5-Yr. Div. Growth NA 1On 02/25/99 DJIA mid-day price was 9205 and S&P 500 at 1250. 2Economic profit trend. Compaq is a leading provider of computer products and services Investment Summary Our recent visit to Compaq on our Texas Tour has caused us to lower estimates because sales in January were below plan in the U.S. and in Europe. Currency issues in Brazil also hurt both revenue and gross margin. Further, Compaq may have been effected by some weakening of the channel. Since Compaq appears to have had a shortfall in January, the question arises: "How is the industry doing?" In retrospect, Dell and HP's slight revenue shortfalls may have been more of an industry issue than we previously believed. We'd have to say that industry sales in January may have been 3-4% below expectations. The problem does not seem to be ASPs or margin pressure, as ASPs appear to be firming and gross margins appear fine. February has shown signs of strengthening despite Compaq telling us the first half was a bit weak. We think Dell was above plan in February, Gateway was on track and Compaq began to see second half strength. We've reduced our Q199 EPS forecast to $0.31 from $0.36 as a result of lowering our revenue forecast and gross margin assumptions. Consensus is $0.35. For the year, we're lowering our forecast to $1.70 from $1.75 (consensus is $1.80). We're lowering our Q1 revenue forecast to $9.8B from $10.0B. January and the first half of February were weaker-than- expected. This comes despite our model already showing a traditional sequentially down quarter. The company indicated that demand was fine in services and at the high end but overall business in North America and Europe had been tracking below expectations for the first six weeks of the quarter. More recently it had picked up and its possible that a very strong March could offset the initial weakness. Asia Pacific and Japan have been exhibiting robust growth. Additionally, the recent 38% devaluation of the Brazilian Real will likely impact the top line and gross margin. The company did not hedge its inventory and receivables and its assets are depreciated at historic cost (and $ conversion). As a result, we've also lowered our Q1 gross margin forecast to 27.2% from 27.6%. Compaq CEO Eckhard Pfeiffer for the first time laid out the company's strategy to become the leading Internet company. The five key goals: remaining the largest web server supplier in the world remaining the largest client manufacturer & supplier to the Internet becoming the largest consumer Internet PC supplier managing and running the company to meet the leading-edge Internet standards leveraging AltaVista into the most important Internet portal/ destination To meet these goals, Compaq has focused all its product groups onto web-based initiatives. The company will be upgrading its web site Compaq.com in the next couple of weeks , and like Dell, will roll out extranets directly with large accounts and with channel partners. Its recent purchase of Shopping.com brings the company a solid e-commerce engine which could help it to drive further peripheral and SW sales, especially for their direct customers. Compaq's custom keyboard which includes an Internet access, search, e- commerce and email buttons will be rolled out onto all PCs. The search button will default to AltaVista. Compaq hopes to move its Supply chain management process to a complete web- based approach. This could improve manufacturing efficiency. We believe Compaq, like other leading PC vendors, has correctly viewed the web as a way to extend and cement customer relationships, while improving operating efficiencies. PC companies that do this can enrich revenue opportunities by increasing the attach rate of services, support, peripheral and other add-on sales. Compaq 's challenges include executing this strategy without alienating the channel further. Compaq services appear to be benefiting from the Digital acquisition. All segments (break fix, system integration and professional services) are growing. The company appears poised to take advantage of being the leading NT service provider as NT continues to scale. Compaq service intends to focus primarily on larger accounts. It hopes to relegate channel players to the smaller business and consumer segments. In those segments it hopes they will sell and deliver Compaq-branded services and pay a royalty fee (100% gross margin). With little room for maneuvering, conflicts could arise from the financially strapped channel if they feel Compaq saves all the large, lucrative deals for itself, leaving them with leftovers. But if Compaq is successful with its strategy, it could result in higher services growth and margins. BUY LARGE CAP Compaq (CPQ) Lowering Compaq Q1 EPS to $0.31 from $0.36 due to weaker-than- expected January Compaq is trading around 24 times our revised forward four- quarter consensus estimates and at a roughly 10% discount to the S&P. Should the stock pull-back as a reaction to our lowering Q1 earnings estimates, we would find it attractive. We maintain our Buy rating and feel the stock should outperform the S&P.