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

To: rupert1 who wrote (54245)	3/20/1999 11:18:00 AM
From: fooledalot	Respond to of 97611

victor, >>They are using an unrealistic $10.033 for revenues. They are including the increased tax rate of 32%. Their operating margin of 8.5% seems unreasonably low. Their EPS of 33 is 5 cents too low. They do not seem to have made allowances for tax credits. In light of the importance of the end of March and the underlying uncertainties they are being overly cautious and are protecting their "wiggle" factor. That said, they definitely project a much more informed insight into CPQ's qtr, and yr., than any of Kumar's statements have reflected. I believe we are seeing CPQ's attempts here at damage control and would not be surprised to see more such meetings and reports by "selected" brokerages/analysts. f

To: rupert1 who wrote (54245)	3/20/1999 1:15:00 PM
From: rudedog	Read Replies (1) \| Respond to of 97611

Victor - A few comments on this article, and on your comments. First, I think this is a very accurate analysis and gives us glimpses into not only the CPQ strategy but the problems they are contending with in implementing that strategy. It is one of the best pieces I have seen and squares with everything I know about current plans. The section on the conflicts that CPQ faces was especially interesting to me. CPQ now has several multi-billion-dollar legacy businesses. Both Tandem and DEC had very high R&D in comparison to Compaq Classic, and the mixture of the two cultures is sure to bring both benefits and conflicts. CPQ would probably be best advised to determine how to support that base with primarily volume components, to get closer to the 4% R&D of the Classic business rather than the 14% of the Tandem/DEC high end. But a realistic target may be closer to 8% for those segments, since there will always be a higher proportional investment to hit the top of the market. Interestingly enough, it took CPQ only about 6 months to get the Tandem team onto a different model. Sales in Tandem are building again, and at rates that are more comparable to the volume market than to the legacy market. Insiders tell me that the Tandem business is growing in excess of 10% and did more than 14% in 4Q98. If they can do that with the DEC businesses, then we should see a big boost in overall profits, since these are 60% and 70% GPM products. The "Gutsy" Alpha strategy is more of a sure thing than portrayed here. CPQ has by far the closest engineering relationship with MS, and the DEC field, especially the services arm, is the runaway preferred partner - they are the only ones to have been awarded "Prime Integrator" status, which means that MS field recommends CPQ services, and no one else, on large jobs. There is no question that Intel will not develop a volume market for Merced - even Intel is now positioning Merced as a "development" environment for IA64 while waiting for McKinley. CPQ can take advantage of the fact that they have platforms today which can run NT64 (I saw in the press this week - C-S news and Infoweek - that CPQ plans to demo NT64 on Alpha next month). They can do a strong developers program around 64 bits which no one else can field. And, if they do it right, this will position them to also be the strongest player when Intel finally gets their 64 bit act together. After all, CPQ is still Intel's largest customer. No matter what 64 bit platform a customer wants, CPQ will have years of experience that no other vendor can match when those platforms get acceptance in the enterprise. In the services business, CPQ's margins are very impressive compared to IBM's. IBM has long used services as a kind of virtual sales arm, and so they have developed a cost structure which takes into account the services pull on hardware. That has hurt IBM's service profitability and is a mistake that CPQ is not making. All in all I think this is a very positive analysis.