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To: Mohan Marette who wrote (116573)	4/12/1999 9:48:00 AM
From: Jill	Read Replies (3) \| Respond to of 176387

Briefing.com "This one hurts" COMPAQ (CPQ) 30 15/16. This is a real problem for the entire tech sector Monday. After the close Friday, computer company Compaq (CPQ) warned that first quarter revenues and profits will be way below market expectations. CPQ said that revenue will be about $9.4 billion and profits $0.15 per share. Wall Street had been expecting about $9.8 billion in revenue and $0.31 per share in profits. CPQ blames the shortfall on "lower than anticipated market demand and increased competitive pricing in the commercial PC sector," according to CFO Mason. This adds to the concerns that have arisen over PC sales lately as Dell had lower than expected growth, and many semiconductor and equipment companies have not had the rebound in business widely anticipated. There have already been some opinions expressed in the market that CPQ is still strong long term, and that maybe the weakness is due to corporate Y2K concerns. Briefing.com would like to propose some additional explanations. First, we have long been skeptical of the Digital Equipment acquisition. Digital was supposed to provide sales channels into the corporate market. But Digital was struggling badly, and it wouldn't surprise us if this deal just hasn't worked out at all. Wall Street is always big on the concepts behind deals when they are announced, but making them happen, particularly when you are buying a faltering company that diverts your core focus, isn't easy. Second, maybe corporations are just flat out cutting back on capital expenditures, including computers. Amidst a strong stock market and a strong economy, traders often prefer to ignore the fact that corporate profits in 1998 were terrible. In fact, as measured by as-reported S&P 500 profits, the GDP corporate profits data, and BusinessWeek's 900 company calculation, profits were down. For anyone that has worked at a Fortune 500 company, as your current author has, the ramifications of this are well know. Companies hold back. Even just not increasing the capital budget means slower growth for their suppliers. When oil company profits are weak, no one is surprised that the oil drillers and other suppliers have problems. Is it really all that surprising that commercial computer purchases are weak now, after a year of lower profits for major corporations? Whatever the reason, CPQ is indicated 4 points or more lower, and Intel, Dell, and other major tech stocks are indicated sharply lower as well. Wall Street might come out with some comforting statements about CPQ today but some companies are going the other way. Salomon Smith Barney, for example, cut this year's earnings estimate from $1.93 per share to $1.14 and next year's from $2.50 to $1.47 and the price target from $60 to $25. Wow, talk about bailing. Briefing.com has also doubts about CPQ's prospects. This warning should be taken at face value. It also does have some legitimate implications for other tech companies, if only because so much confidence about strong profit growth is built into major tech stocks. This one hurts. Copyright © 1999 E*TRADE Securities, Inc. All rights reserved.