URL here, over from the CPU thread. Anyone have an opinion on a GTW/CPU Merger?
Bloomberg speculates on a GTW/CPU MERGER today:::
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CompUSA Shares Fall on Losses in 3rd, 4th Quarters (Update3)
Bloomberg News
March 5, 1999, 12:02 p.m. PT
CompUSA Shares Fall on Losses in 3rd, 4th Quarters (Update3)
(Adds analyst and investor comments. Adds details.)
Dallas, March 5 (Bloomberg) -- CompUSA Inc. shares fell as
much as 28 percent to the lowest level in almost four years, as
the largest U.S. personal computer retailer warned of unexpected
losses for two quarters because of weak sales.
CompUSA was expected to earn 21 cents a share in the fiscal
third quarter and 11 cents in the fourth quarter, the average
estimates of analysts polled by First Call Corp. It has reported
a loss or declining profit in each of the last four quarters.
The retailer is losing PC and software sales to rival chains
Circuit City Group and Best Buy Co., direct sellers such as Dell
Computer Corp. and Gateway 2000 Inc. and companies on the
Internet. And corporate customers, which buy more-expensive and
higher-profit machines, are paring their orders.
''It's a disaster,'' said analyst Maureen McGrath of Salomon
Smith Barney Inc., who cut her rating to ''neutral'' from
''outperform.''
CompUSA fell 1 13/16 to 6 5/16 in midafternoon trading of
16.4 million. The shares earlier fell to 5 7/8, the lowest level
since April 1995. Today's drop is the biggest in one day since
the company went public in December 1991.
The shares have lost about 84 percent of their value since
reaching a high of 38 in December 1997, when CompUSA was expected
to take advantage of the boom in PC and software sales.
Dallas-based CompUSA, which operates 208 U.S. superstores,
couldn't be immediately reached for comment.
PC Prices
The average PC price has dropped at least 15 percent the
past year, and CompUSA hasn't been able to boost sales enough to
offset the lower profit from each sale, said Alan Creech, equity
analyst at Banc One Investment Advisors, which owns shares.
Falling prices -- stemming from price competition and the
popularity of units costing less than $1,000 -- have hurt a
number of sellers. However, rivals such as Best Buy or Staples
Inc. get less of their revenue from PCs than CompUSA, where
hardware accounts for about 60 percent of sales.
The other chains also can offset lower PC prices by selling
products such as digital video disc systems, office supplies and
wireless telephones. Such hot-selling products also bring in more
customers who may pick up a computer.
''If someone's coming in for just a PC, that's all they're
going to buy,'' said Creech. ''If they come in for paper or
pencils and see PCs, that's a plus.''
At the same time, corporate customers have been paring
orders because they've done a lot of purchases preparing for the
Year 2000 glitch or are waiting to upgrade next year. Some PCs
may malfunction as they read the year 2000 as the year 1900.
The slower sales also suggest that last month's introduction
of Intel Corp.'s new Pentium III computer chip created less
demand than expected at CompUSA's stores, analysts said.
Warning
CompUSA warned late yesterday that it will just about break
even in the third quarter ending March 27, before costs of about
5 cents a share related to information technology and a push to
sell more on the Internet. With those costs, it will have a loss.
The company also forecast a third-quarter percentage sales
decline in the high single digits at stores open at least a year.
It had previously forecast an improvement in so-called same-store
sales from a 4.7 percent decline in the second quarter.
''There's certainly not a whole lot more deterioration in
the business'' the company can stand, said Harry Katica of
Prudential Securities Inc., who rates the shares ''accumulate.''
Last year, CompUSA bought rival Computer City Inc. from
Tandy Corp. for $211 million in cash and a note to remove its
largest competitor and add stores at a low price.
Chief Executive James Halpin has also looked for other ways
to build sales, such as adding Apple Computer Inc. boutiques in
its superstores, expanding its profitable services business and
planning to sell more over the Internet.
''The potential turnaround will take longer than originally
forecast,'' said analyst Rebecca Yarchover of Credit Suisse First
Boston, in a report. ''The Street will no longer be willing to
give management the benefit of the doubt.''
Changing Ways
With no end in sight for falling prices, companies are
changing how they sell computers. Some, including CompUSA, have
started build-to-order programs.
In the future, stores probably won't keep PCs in stock,
Creech said. Instead, retailers will display models that
consumers can order and pick up in a few days. That would cut
costs and prevent retailers from having to hold inventories of
PCs that are declining in value, he said.
''The margins for PCs have just gone away, and it's no
longer profitable for retailers to run them through their
stores,'' Creech said.
The decline in CompUSA's stock price in the past year has
led to speculation that it might be bought. A purchase from
another retailer isn't likely, Creech said, since most would be
loath to take on that much exposure to PCs.
A more likely candidate is Gateway, which has been opening
retail stores, he said.
--Anne Pollak in the Princeton newsroom (609) 279-4043 with
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Cheers,
Urlman
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