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

To: rudedog who wrote (58376)	4/18/1999 12:52:00 PM
From: Elwood P. Dowd	Respond to of 97611

rudedog... looks like we're in for a long and harrowing week. So many negatives that it is hard for me to believe that CPQ can do anything but continue to slide. Boxmakers out of favor, market sitting precariously near an all time high, money moving to cyclicals, etc. Do you have an opinion on CPq's announced .15 and 9.4b in revs. By that I mean do you have a thought on how accurate they might have been in coming up with that number. Could it be actual? Could it be coming mostly from tax considerations? Do you see anything positive on the horizon that could buoy the stock. If we don't hold here, I'm afraid we'll go into the teens. I'm not real good with reading charts, but some have said, and it appears to me as well, that 17 is the next support. When will the bleeding stop? El

To: rudedog who wrote (58376)	4/18/1999 1:13:00 PM
From: E_K_S	Respond to of 97611

Hi rudedog - I was reviewing the annual report and had a few observations. I am always interested in the net Free Flow Cash Flow which was falling from 1997 to 1998 reflecting a negative FFCF of <0.21>/share but significantly changes on how they handle the Purchased-in-process technology. It is hard to tell how all this will eventually fall out because of the DEC merger and how assets are eventually classified: ie. purchase in process technology, property,plant & equipment, intangible assets trademarks & goodwill. (Look at pg. 53 of the annual report and you will notice a large net loss titled "excess value over purchase price"). The true picture is how they present these charges going forward starting with their next reporting period. With the increase in revenue, I expect the Free Flow Cash Flow to now be positive, perhaps over $0.90/share once the final quarterly depreciation numbers are added back in. I just can not tell based on all the one time adjustments (ie. accrued restructuring costs). Also as service revenues increase from this period forward, the Free Flow Cash Flow should increase accordingly. The big item to watch is how they account for the Purchased-In-Process Technology loss (over time) as it is about 3x's as large as the one time tax gain. It could be as large as $1.50/share. I assume they will write this off over time (similar to a depreciation expense) according to some accelerated schedule. ===================================================================== To Summarize: CPQ needs to work on achieving steady growth in their top line revenues by increasing their Service revenues as a percentage of other Product revenues. Watch their Free Flow Cash Flows as they become positive as more of these Service Revenues generate net free cash. Also, continue to see how CPQ accounts for the DEC merger as (1) Purchased In-Process-Technology adjustments, (2) Accrued restructuring costs, and (3) other one time adjustment can impact "significantly" the quarterly earnings performance. The key number that will signal how successful CPQ is completing their "new business model" transition going forward is ... if the Free Flow Cash Flows measured quarter-to-quarter increase. If we see positive growth in the net FFCF on a per share basis, CPQ will be well on their way implementing the changes they need to grow their earnings. EKS P.S. If someone has calculated the current FFCF per share based on the most recent financial information, please post. I would like to compare with my estimates. Perhaps we can come up with some reasonable targets for the next few quarters.

To: rudedog who wrote (58376)	4/18/1999 1:15:00 PM
From: Elwood P. Dowd	Respond to of 97611

Newspaper Says IBM Germany Sees Strong Growth In Computer Industry Dow Jones On Line - April 18, 1999 10:25 FRANKFURT -(Dow Jones)- The chairman of International Business Machines Deutschland, a subsidiary of IBM Corp., told a German Sunday newspaper that he sees continued strong growth in the international computer industry, despite Compaq Computer Corp.'s recent profit warning. The IBM (IBM) subsidiary couldn't be reached to confirm the contents of the interview. Compaq's (CPQ) recent profit warning doesn't signal a crisis in the industry, said Erwin Staudt, chairman of IBM Deutschland. Compaq recently said it would miss analysts' first-quarter earnings projections by more than half, coming in around 15 cents a share. Analysts surveyed by First Call had a mean estimate for Compaq to post earnings of 32 cents a share in the quarter. Staudt sees annual growth of 15% to 20% in the international computer industry, with even stronger growth rates in software and computer services, he told Welt am Sonntag. "We believe that the computer industry in the exploding area of e-commerce alone, or the business development of customers via the Internet, will generate around $600 billion in the year 2002," he said. About one-third of this will come from software and hardware, and services, he said.