WSJ this morning. It looks like there are some new lowering of estimates on the way - at least until Rosen gives guidance - but perhaps not downgrades. It is difficult to see what Rosen said yesterday that justifies lower estimates. It seems that some analysts were piqued again.
April 22, 1999
Ousted Compaq CEO Speaks Out;
Claims He Was Firm's Scapegoat
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
Eckhard Pfeiffer, ousted as Compaq Computer Corp.'s chief executive over the weekend, defended his management of the struggling company and said he was a scapegoat for Wall Street.
Mr. Pfeiffer's comments Wednesday came as the huge computer maker said it earned $281 million, or 16 cents a diluted share, in the first quarter, in line with its warning earlier this month of lower-than-expected earnings. In the first quarter last year, when the company was wracked with inventory problems, it had net income of $16 million, or one cent a share.
Revenue was $9.42 billion, up 66% from the $5.69 billion in the year-earlier period, before its acquisition of Digital Equipment Corp. However, revenue fell 13% from the fourth quarter's $10.86 billion.
In an interview Wednesday with the CNNfn cable network, Mr. Pfeiffer further criticized Compaq's board. "The feedback I've been getting from many, many people is that the Compaq board should hang their heads in shame," he said. "I believe the board contacted the wrong sources" to get information on the company's situation, he continued. "I also would have expected after the March board meeting that I would have had a chance to present in the April meeting a recovery plan."
Mr. Pfeiffer said his boss, company Chairman Benjamin M. Rosen, a former Wall Street analyst who became a venture capitalist, listens carefully to Wall Street investors. "They are a significant influence on him, based on his past experience," he said. A company spokesman said Mr. Rosen had no comment on Mr. Pfeiffer's remarks.
Mr. Pfeiffer insisted he had been on top of the revenue woes, describing tremendous efforts to cope with what he saw as an industrywide slowing in commercial PC sales. "We made a gigantic attempt to make up for it that went to the last hour of the quarter. And we didn't make it," he said.
Mr. Pfeiffer, who has been roundly criticized for blaming industry conditions without acknowledging any missteps of his own, stuck to his position despite positive first-quarter reports by industry giants International Business Machines Corp., Microsoft Corp. and Intel Corp.
In New York Stock Exchange composite trading, Compaq shares closed up 25 cents at $24.25. Analysts said they were preparing to further reduce their 1999 profit projection of $2 billion, or $1.20 a share, as a result of the uncertainty surrounding the Houston company's plans.
"My estimates have to come down. There's no two ways about it," said Ashok Kumar, analyst at US Bancorp Piper Jaffray, who now sees a $1.20-a-share profit. SG Cowen Securities managing director Richard Chu said he probably will drop his 1999 earnings estimate to $1.7 billion, or $1 a share. "They're taking the line they're not contemplating a restructuring although, in the same breath, Mr. Rosen will hasten to add they're looking at everything," Mr. Chu said.
Mr. Rosen called the management shakeup, in which Chief Financial Officer Earl L. Mason also resigned, the result of a combination of things. It would be "incorrect to associate it with any single event," he said.
Mr. Rosen declined to further detail the issues, other than to cite slowing growth in Compaq's corporate PC business, higher-than-expected sales of low-profit computers and PC pricing pressures. "What we're doing now is looking ahead and trying to plan for the future," he said.
Michael D. Heil, senior vice president, sales and marketing, said the first quarter's results show "considerable moderation of commercial PC demand in the U.S. and world-wide." Mr. Pfeiffer said that even if the company had hit its revenue goal, Compaq "could have fallen short on profit given the pricing pressure."
Compaq's gross profit margin fell to an annualized 24.7% from 26.4% in the fourth quarter, a reflection of the increased sales of low-profit PCs. Richard Gardner III, an analyst at Salomon Smith Barney, said one worrisome sign was a decrease in inventory turns, a measure of manufacturing efficiency. The rate fell to 13.7 turns from 15.5 turns in the fourth quarter. In contrast, Dell Computer Corp. turns its inventory nearly 60 times a year.
John T. Rose, senior vice president of Compaq's Enterprise Computing Group, said sales of its most expensive central computers also fell short. "There was some execution issues we had at the very high end that caused us a miss [sales projections] a little bit
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