|
In Focus: PC market
|
 |
December 13, 2000: 1:08 p.m. ET
Chase H&Q technology analyst Walter Winnitzki comments on Compaq, others
|
NEW YORK (CNNfn) - Walter Winnitzki, technology analyst, Chase H&Q, says he's downgraded his estimates on Dell and Compaq.
Although he has a "buy" rating on Compaq, Winnitzki said the company has "hit an inflection point in the turnaround -- it's not a smooth turnaround and there are some issues out there."
Winnitzki also warns that "growth in the consumer PC sector will be nil this year and it's spreading to other areas of the market."
Read more of Winnitzki's comments below:
In Focus airs daily on CNNfn's network at 12:10 p.m. The following includes comments made both during the show and in the pre-show interview.
CNNfn: Revenue for the fourth quarter is expected to be between $11.2 billion and $11.4 billion, 8 percent-to-10 percent below expectations. Did that surprise you?
Winnitzki: We downgraded Compaq (CPQ: Research, Estimates) last week and indicated that the risk of a negative pre announcement had risen significantly, and that's what happened.
Any time you have an earnings "surprise" in general, it surprises people, but we looked at the evidence out there and the increased risk of companies like Compaq and Dell (DELL: Research, Estimates) missing their numbers -- that's why we cut estimates on Dell this morning.
| |
|
|
| |
|
|
| |
I have no strong "buys" on anything. I have "buy" ratings on Compaq and Gateway, but that's not driven by demand-related calls. It's more internal things happening to the business model.
|
|
| |
|
|
| |
|
|
| |
|
|
| |
Walter Winnitzki, analyst, Chase H&Q |
|
CNNfn: Earnings from operations, excluding charges, will total 28 cents-to-30 cents a diluted share. Analysts are expecting the company to earn 36 cents a share for the fourth-quarter
revenue are still approximately 7 percent above the same quarter last year -- does that mean it's not such a bad "miss"?
Winnitzki: Yes and no. They have easy comparisons versus last year because that was when Compaq was in the process of reshifting its business and they've made significant progress in many of its operations, but they hit an inflection point in the turnaround -- it's not a smooth turnaround and there are some issues out there.
There's a lot of change in the marketplace and everyone will be impacted by it to some degree -- that's why we took action on Dell -- there's more risk out there.
CNNfn: What was Compaq's shortfall due to? Where are the weaknesses?
Winnitzki: The reason for this we've seen a very sharp decline in the consumer PC marketplace. Growth in the consumer PC sector will be nil this year and it's spreading to other areas of the market, most notably the small and medium business marketplace.
The importance there is that's a big chunk of the overall industry and one of the few areas that had been growing at a healthy pace in the last year, whereas the large corporate space has already been soft.
A year ago, there was the Y2K slowdown and the corporate market slowed down, but the medium sized business sector didn't slow down throughout 2000. That's one of the sectors that's been growing rapidly, until now.
CNNfn: What does that mean for the PC market?
Winnitzki: It's tied to the whole issue of consumer spending and consumer confidence. The slowdown in spending is affecting the overall PC business and now it's spreading to the small and medium business market.
There are similarities between the consumer market and the small to medium business market - owner/operators own their own businesses and they may be sitting out purchases of computers and that will play out until early next year and improve in the spring or early summer.
CNNfn: When do you see PC demand resuming?
Winnitzki: We're going to be in a tough market until the spring or early summer. There's evidence that things could improve -- at that time there will be some action taken by the Fed to affect interest rates and consumer confidence.
We could see an upgrade cycle from Microsoft Windows 2000 -- new software will prompt computer purchases as well. There were a lot of purchases made to lead up to the Y2K issue and some of those are coming off depreciation cycles. Comparisons in the consumer space will get easier next spring because in the spring this year was when the consumer market started to soften.
CNNfn: The company said business activity in the rest of the world remains on track; how are they doing on the international front?
Winnitzki: According to people I've spoken to, they're doing quite well internationally, especially in Europe. Compaq's business is healthy and gaining market. The European market has not been robust but evidence suggests the worst may be over and Compaq is doing relatively well there, compared to its competitors.
CNNfn: What's your outlook for the stock?
Winnitzki: We maintain a buy rating. We don't expect the stock to rebound in the next couple of months but the risk reward ratio is favorable. They are continuing to make internal moves to reposition the enterprise systems business. Compaq is no longer just a PC company and the enterprise business tends to have higher valuations.
CNNfn: What's your outlook for the group?
Winnitzki: Increasingly cautious. The fundamentals will remain soft into the spring and summer but stock prices have begun to discount that -- maybe not fully but for the most part.
CNNfn: What are your favorite stocks in the group?
Winnitzki: I have no strong "buys" on anything. I have "buy" ratings on Compaq and Gateway (GTW: Research, Estimates), but that's not driven by demand-related calls. It's more internal things happening to the business model.
Gateway I like because they're driving a new business model and that means more than half of their earnings don't come from the sale of PCs but from product and services tied to it after the sale -- it's called "beyond the box." And Compaq is moving into the enterprise space.
-- reported by Carmina Perez 
|
|
|
|
|
 |
|
