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

To: rudedog who wrote (54351)	3/22/1999 9:04:00 AM
From: rupert1	Read Replies (1) \| Respond to of 97611

DELL and COMPAQ DLJ Pessimism says still watching for a "shortfall" from CPQ. Rather than transcribe what I just heard from CNBC here is a posting from the DELL thread: To: maxx99 (110571 ) From: Trufflette Monday, Mar 22 1999 8:52AM ET Reply # of 110576 Followup: 08:45 ET Dell Computer (DELL) 40 1/4: DLJ lowering its Q1 earnings estimate from $0.17 to $0.15; says continues to watch for a preannouncement from Compaq Computer (CPQ). Based on First Call survey of 30 analysts, DELL was expected to earn $0.16 for Q1 (estimate range $0.15-$0.17). DELL shares currently indicated 1 1/4 lower in pre-market.

To: rudedog who wrote (54351)	3/22/1999 9:37:00 AM
From: Kenya AA	Read Replies (1) \| Respond to of 97611

CPQ: Two Reasons We Don't Expect Channel Stuffing 07:46pm EST 18-Mar-99 Montgomery Securities (K. King) We're getting lots of questions about whether CPQ will or won't stuff the channel before quarter end, so we thought the following might be helpful. We see two basic reasons why channel stuffing by Compaq is unlikely this quarter: 1. It wouldn't fool anybody given the increased analyst scrutiny. Several analysts, including ourselves, continue to closely monitor the key distributors and resellers. The top channel players tend to be quite forthcoming about vendor behavior, certainly off line and even on conference calls in some cases. Under these heightened scrutiny levels, it's unlikely that Compaq could offer and then execute a sizable buy-in without the street quickly detecting it and quantifying it. Channel stuffing has effectively become obsolete as a way of masking significant execution problems from Wall Street. 2. CPQ's new component procurement policies -- shifting inventory responsibility to suppliers -- preclude big build-ups of inventory. Compaq transitioned the bulk of its suppliers to a more-or-less 'JIT' model following its SAP installation last August. This means Compaq takes possession of most components only when it's ready to build products. The new policies were part of the reason for the 40+% improvement in Compaq's hardware inventory turns between last year's June and December quarters. Previously, Compaq had tended to adhere to pre-determined component delivery schedules that often proved way out of synch with end demand and left Compaq owning too much inventory. Followers of Apex PC Solutions* (APEX, BUY, $13), for whom Compaq is a 35-40% customer, got a first hand look at the procurement transition last year. Conclusion: It's unlikely we'll see 1Q results inflated by channel stuffing, and if we're wrong, we'll likely know it beforehand. We continue to think Compaq's 1Q shortfall from our original expectations will be relatively small, not the repeat of the 1Q 96 and 1Q 98 debacles that many investors fear. We believe a shortfall as severe as that called for by the most bearish observers would have been formally pre-announced by the company earlier this month. As we discussed in our note on Wednesday, Compaq's 1Q's over at least the last four years show a pattern of being difficult, such that investors who have bought in the March trough have been rewarded in every case over the course of 2Q and 3Q. Some background on channel stuffing. Prior to 1Q 98's inventory debacle, channel stuffing was the tried-and-true way for PC manufacturers facing a soft quarter to still hit revenue and inventory expectations. Buy-ins were business as usual at quarter-end, stuffed product usually sold through in the first month of the following quarter, and stuffing was a relatively minor investment issue. Channel stuffing and the accompanying dealer payoffs had become something of a PC industry ritual, one that dated back to the early/mid 1980's. Everything changed in and around 1Q 98, when CPQ and IBM both dramatically over-forecasted sales, stuffed channels to the gills and effectively sucked two quarters of profitability out of the indirect PC vendor group. Since then, CPQ, IBM and especially HWP have approached forecasting more conservatively -- recall the shortages that prevailed during 3Q and into 4Q last year -- and have avoided channel stuffing while working to improve their forecasting and supply chain management. With 1998 revenues of $31 billion, Compaq is the worldwide market leader in PC's. Headquartered in Houston, TX, the company has manufacturing in the U.S., Scotland, China, and Brazil. Compaq's revenue split by geography for 1998 is estimated at 54% North America, 32% Europe, 6% Asia Pacific, 4% Latin America, and 4% Japan. Pro forma 1998 revenues for Compaq and Digital Equipment Corporation (acquired in June 1998) combined were $36.5 billion, making Compaq the world's second largest computer company. PFY Ends 12/31 1998A 1999E 2000E Q1 (Mar) $ 0.01 $ 0.33 Q2 (Jun) 0.02 0.41 Q3 (Sep) 0.07 0.48 Q4 (Dec) 0.43 0.66 Fiscal Year $ 0.53 $ 1.87 $ 2.40 P/E 60.2x 17.1x 13.3x P/E/G 301% 86% 67%