Kumar wiping eggs off his face! Hey I like it. [MUST READ]
Apratim:
Check this out, Bloomberg reports seems to indicate people are aware of what is going on with Compaq and the likes.Wow somebody is finally getting it. Look at Kumar's comment,the 'poor' guy got a 'buy' on Dogpaq.
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Compaq to Report Lower-Than-Expected 1st-Qtr Earnings (Update2)
Compaq to Report Lower-Than-Expected 1st-Qtr Earnings (Update2) (Adds analyst comment, details, starting in 4th paragraph.)
Houston, April 9 (Bloomberg) -- Compaq Computer Corp., the No. 1 maker of personal computers, warned that its first-quarter profit will be about half analyst forecasts because of plummeting prices and weak demand.
The Houston-based company expects earnings of about 15 cents a share, lower than the 31 cents analysts expected. Sales will be $9.4 billion, compared with expectations for as much as $9.98 billion when the quarter began.
Compaq is struggling to keep up with rivals like Dell Computer Corp., which hold down costs by selling directly to customers. Compaq, by comparison, can't lower prices on its already-built machines without sacrificing profit, a crucial flaw when demand slows. ''If the demand doesn't come, then all you're stuck with is cheaper boxes,'' said Cody Acree, an analyst with Southwest Securities Inc. in Dallas, who rates Compaq ''buy.''
Evidence that slow sales would hurt earnings started appearing several weeks ago, said Ashok Kumar of U.S. Bancorp Piper Jaffray, who rates Compaq ''buy.'' ''The company should have pre-announced (weeks ago) and started off with a clean slate. There's an issue of management credibility,'' Kumar said.
Compaq, which rose 1 5/16 to 30 15/16 before its warning, fell as low as 26 3/4 after the announcement, according to an analyst.
The stock has dropped about 26 percent this year, and is off 40 percent from as high as 50 1/4 in January. Ten Compaq executives, including Chief Financial Officer Earl Mason, sold about $50 million of their shares in February before warning that January sales to small businesses had slowed.
Other Factors?
While Compaq blames slow PC sales, some analysts noted that other companies, including Dell, the biggest PC direct seller, and Intel Corp., the biggest chipmaker, haven't warned on profit.
That could mean Compaq's problems run deeper, they said, and may be related to trouble with the $9 billion Digital Equipment Corp. acquisition, which was completed in June. ''It could be that the Digital businesses are doing worse,'' said analyst David Wu of ABN Amro Corp. Digital makes sophisticated computers and provides computer services designed to complement Compaq's PC lines.
Not that the personal computer market is booming.
Corporations bought a lot of PCs at the end of 1998 and are waiting for better deals. Some aren't spending until they gauge the impact of the Year 2000 computer glitch. Others held off in anticipation of Intel's new Pentium III, which the chipmaker touted weeks before it was available in late February.
The slow start to the quarter meant PC makers needed a last- minute sales pickup. ''A lot of analysts forgot this was a seasonal business,'' said Paul Meeks, a fund manager at Merrill Lynch Asset Management, which owns Compaq shares.
The warning comes as Compaq gears up for its Innovate Forum that starts Monday in Houston. The gathering of major customers is hosted by senior managers and is scheduled to feature speeches from Chief Executive Eckhard Pfeiffer and Microsoft Corp. Chairman Bill Gates. Compaq may unveil a new sales strategy at the meeting, analysts said.
The company is expected to report earnings on April 21.
Corporate Demand
Compaq was hammered when demand from corporate customers slowed, which put even more pressure on prices. The average price for desktop machines sold in U.S. stores fell 18 percent in February to $956 from $1,172 in the year-earlier period, according to market researcher ZD InfoBeads, a unit of Ziff-Davis Inc. Almost 60 percent of PCs sold in February went for less than $1,000.
Compaq said in late February that sales to some corporate customers were less than expected, sending the stock down 14 percent in one day. It was banking on a strong March to recover. ''They came out aggressively on prices expecting demand to be there,'' said Southwest Securities' Acree.
Compaq's problems aren't affecting competitors to the same degree, said David Stremba, an analyst at San Jose, California- based researcher Dataquest. ''Compaq has talked about weakness in small and medium business. This is a carryover of that weakness,'' he said.
''Compaq has been struggling with itself.''
Compaq's woes extend to its indecision about how to sell PCs, Stremba said.
For years, Compaq has used distributors and dealers to sell its machines. Competition from Dell has forced Compaq to change its strategy and look at selling direct. Selling direct helps cut costs because manufacturers buy parts only when they need them and take advantage of lower prices.
Dell is expected to meet or beat analysts' estimates and Hewlett-Packard Co. probably will have a good, if unspectacular, quarter, Stremba said.
1998 Redux
Compaq's warning brings back memories of the year-ago first quarter, when the company rocked the industry with massive price cuts on its products as it tried to get rid of extra inventory it built up in late 1997.
Late on a Friday in March 1998, Compaq warned that it would break even in the first quarter, far below analysts' forecasts of 35 cents. Compaq wound up reporting earnings of $16 million, or 1 cent a share.
Analysts said some of the same red flags went up this year.
Kumar cut his estimates on Compaq three weeks ago because of concerns about too much inventory and weak sales. Compaq had stacked up five to six weeks of PC inventory among its distributors and dealers, Kumar said.
In the year-ago quarter, Compaq had sales of $5.69 billion, which doesn't include Digital. Digital had sales of $2.96 billion in the first quarter of 1998.
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