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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: jmac who wrote (17715)	3/11/1999 5:45:00 PM
From: Sam Citron	Read Replies (1) \| Respond to of 74651

Microsoft only cares about unit growth in PCs (which is exploding), not about ASPs, which worry the hardware business.

To: jmac who wrote (17715)	3/11/1999 6:25:00 PM
From: rupert1	Read Replies (1) \| Respond to of 74651

jmac: To answer your question. CPQ hosted a group of investor clients of Credit Suisse First Boston two weeks ago. The CRFB technolgy analyst was with them. He suggested to the CPQ CFO that the PC market was soft in January. The CFO (Mason) agreed, but suggested that the analyst not alter estimates, because the softness was seasonal, the second half of February was lookign strong and indications for March were good. But most of the quarter's sales come in March so it was back-end loaded, as usual, and it would be a waiting game to see if March made up for January softenss. Mason estimated that the softness in the first six weeks would eat into CPQ's private targets (which we can assume were higher than consensus estimates ) to the extent of 1 cent. He also explained that because of the Brazil Real devaluation, there would be a one-time charge of up to 2 cents. This 2 cents had nothing to do with slow sales, it was a loss through devaluation. In any case his outside estimate of the cost to CPQ's targets was 3 cents. The CSFB analyst immediateley wrote a report in which he lopped 5 cents of the first quarter. About 8 other brokerage houses picked up his report and lopped off between 3-9 cents off the quarter and as much as 15 cents of the year. One or two analysts bothered to call CPQ. One of them was Dan Niles. He said that he was not adjusting, the whole thing was an overreaction. He issued a Strong Buy on CPQ. The damage was done. The next day it dropped $6 and has been going down in near panicky atmosphere since. It is 40% of its high. The company has stood by the story I have told above but will not issue a correction. It feels an attempt to correct the analysts will do more harm than good. As of yesterday, it was still informing callers that it was not changing its own targets and was expected to meet consensus estimates. Unofficial sources from within the company say employers have had similar assurances from the CEO. There is an issue about the relative growth rate of units, which interests MSFT, and revenues. But so far, CPQ is indicatng that revenues and margins will be fine. One other major consideration is that almost 50% of CPQ revenues does not come from PC's but from high end servers, storage and increasingly from consulting services. If one looks for a reason for the extraordinary reaction of the analysts and the market to Mason's comment about seasonal softness, it should be remembered that DELL had come in with growth of 38% instead of its usual 50%+. HWP had mentioned seasonal softness and there were other indications. Analysts were lookign for trouble from CPQ espescially as they had been anticpating higher than usual revenues for this season because of YK2 compliance. MSFT announcement tonight that PC sales are there is particularly good for CPQ because of the close relationship between the two companies and because it confirms what CPQ has been saying. The killer could be unexpected softness in the last two weeks of March and this possibility will keep the market on edge. CPQ's quiet period starts on Monday so tomororw could be an important day.