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

To: Kenya AA who wrote (50608)	3/1/1999 8:54:00 AM
From: Elwood P. Dowd	Read Replies (2) \| Respond to of 97611

Not in the last 10 minutes that I've been watching.

To: Kenya AA who wrote (50608)	3/1/1999 8:58:00 AM
From: Elwood P. Dowd	Respond to of 97611

Sell-off at Compaq Triggers Unfounded Concerns at Dell Compaq (NYSE:CPQ - news) led tech stocks lower on Friday, slipping more than $5 after several analysts downgraded the stock because of concerns over weak January sales to small and mid-sized businesses. Other PC stocks were dragged down in sympathy including Dell, which fell to $78 before rebounding to $80.13, $1.63 lower overall. Do Compaq's problems reflect an industry slowdown and if so, what does that mean for Dell? When it comes to managing inventory, Dell is still the king-it doesn't even build machines until they are ordered. Compaq, with its goal of less than four weeks inventory, doesn't come close. When PC sales growth slows below forecasts, Compaq's inventory blows out, while Dell's remains intact. It is worth tracking back a year and a bit to see what happened the last time Compaq's inventory blew out. In the fourth quarter of 1997, Compaq stuffed channels full-to-overflowing so it could report record sales. Come quarter one 1998, with a post Christmas slowdown, Compaq couldn't give its PCs away. It took Compaq the better part of the year to get its inventory back in order, and the fire-sale prices caused a precipitous fall in PC average selling prices and in component prices. What happened to Dell? It emerged victorious with a superb operating environment. Dell's lean inventory allowed it to take advantage of falling component costs. Despite lower average selling prices, Dell's margins expanded to record highs and the company boosted market share. What does that mean for us here in 1999? Compaq clearly hasn't repeated the same devastating technique it used to artificially boost sales in 1997, but a buildup of inventory in this fast-changing industry will generate similar results, on a commensurably smaller scale. That means inventory write-offs at Compaq and expanding margins at Dell. In short, Dell should be praying for a blowup at Compaq-which would create the ultimate operating environment for Dell. What about an industry-wide slowdown? Dell derives over 80% of revenue from large businesses. Small and medium business revenue-the area representing slowing growth for Compaq-would have to implode to materially hurt Dell. Don't take this to mean we are bears on Compaq. There are plenty of synergies coming from other areas of the business that make Compaq an attractive play at the right price. But when it comes to managing PC inventories and forecasting demand, Compaq's track record is lousy. 1999 is going to be a tough year to forecast, with Y2K throwing a possible spanner in the works in the second half. Volatile sales and difficult forecasts are where Dell shines. Limited visibility allows the company to prosper thanks to its ability to react quickly and aggressively to any changes. That's why our vote is with Dell. Caroline Jones