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

To: Captain Jack who wrote (57076)	4/12/1999 12:15:00 AM
From: Andreas	Read Replies (2) \| Respond to of 97611

Why does 9.4 billion in sales equate to 15 cents. Maybe here's why. All we know so far is that cpq expects net earnings to be about .15 (won't be less IMO, might be slightly higher). Now, a $400,000,000 shortfall in sales should equate to no more than 2 cents a share assuming that original projection was 30 cents per share profit (30 cents equates to a net of 5% of sales). So what's missing? Where did the other 13 cents go? Here are the possibilities (not in order of likelihood): (1) extraordinary write-off not previously anticipated relating to DEC; (2) net profit margins across all product lines decline sharply due to price reductions; (3) G&A costs up (I believe you will see an increase in G&A but will be insignificant relative to total earnings shortfall); (4) extraordinary write-off due to obsolete/unmovable inventory; (5) Product mix shifted from high margin product lines to lower margin product lines. My guess (and I want to emphasize it can only be a guess and is presented here only as an example of the kind of things we might expect to see when income statement is finally made available) is that 13 cents went as follows: (a) 1 cent went to incremental g & a (b) 7.5 cents went to inventory write-offs (100,000,000) (c) 4.5 cents went to a combination of price reductions and product mix shifts. By april 21st we'll know. The sad thing is ep and em know right now and instead they tell us a bunch of vague nonsense about demand being lower and price competition diminishing profit margins. Sure that's part of the story but hardly the whole story!!