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

To: Aitch who wrote (50239)	2/27/1999 6:42:00 AM
From: rupert1	Read Replies (1) \| Respond to of 97611

Aitch: Thanks a lot. Your postings of the analysts reports has been invaluable. I hope everybody notes the only report to quote CPQ's own estimates of the effect of the problems on the quarter is Montgomeries Securities. CPQ is quoted as saying that it is not yet a foregone conclusion that there will be a revenue shortfall for the quarter. Demand in the second half of February is good and March looks good. CPQ's own concern is that they may not be able to ship enough units to meet that demand before the end of March. "Enough" is defined as the quantity required to make up for the softness in the first six weeks. CPQ's own estimate is that this may reduce earnings by 1 cent. The second important point is that the devaluation of the Brazil Real is a one-off event which may reduce earnings by 2 cents. (The analyst thinks this may be exaggerated given the relatively low contribution to top lne from Brazil.) CPQ, therefore, estimates that the problems may cost a total of 3 cents. Given the comment on Brazil, and the other qualifications, 3 cents appears to be a conservative guidance from the company's point of view. Nevertheless, analysts have been more conservative. They have converted 3 cents to 5 cents. Furthermore, they have extrapolated some of this quarter's problems to the entire year and reduced annual earnings estimates by 10 cents or more. CPQ never made any numerical esimates for the quarter, although it said it was comfortable with analysts expectations. It has still not given any estimates but has stated what the problems may cost on an earnings per share basis. The conventional wisdom was (and remains for me) that when CPQ said it was comfortable with analysts expectations it privately expected to beat those expectations. It is now saying that whatever private target it had before it now wishes to adjust down by 3 cents as a precautionary measure. We are left to wonder if the strong sales in high margin enterprise products and services and a very strong March in PC's will enable CPQ to meet or exceed analysts previous or current expectations. The marked weakness in UK sales is consistent with my anecdotal observation that I rarely see a COMPAQ ad here although I see a lot of DELL, GATEWAY and yesterday a four page IBM spread in the Times newspaper. However, yesterday I did hear my first CPQ radio ad while driving.

To: Aitch who wrote (50239)	2/27/1999 6:57:00 AM
From: rupert1	Read Replies (1) \| Respond to of 97611

Aitch: Robinson-Humphrey's analysis is interesting. It did its own original research which it published on February 18th. That research showed an incremental build-up of inventory at the VARs. R-H manages to explain this build-up without attributing it to "channel-stuffing" by CPQ. R-H had already stated that it expected the inventory problem to affect 1st quarter sales and so has earned some credbility. R-H takes the view that the problem is not so much slower demand in the first six weeks, but the need to work down inventory from VAR's. So even though it views the problems from the perspective of inventory control by VARs (what Kumar uncharitably calls "channel-stuffing") it's conclusion is less draconian than some of the other analysts. It reduces expectations by only 2 cents for the quarter and retains the original expectations for the year: "Since our analysis of channel inventory supports the concern of slower shipments from Compaq - - perhaps for different reasons - - we will lower our Q1 EPS estimate modestly to $0.32 from $0.35. Our 1999 EPS estimate remains at $1.70 versus a consensus figure of $1.80. Rated2/2-H."