Compaq Issues Earnings Warning

The company says it won't meet its first-quarter earnings consensus of 31 cents a share.
Author:
Publish date:

SAN FRANCISCO -- Compaq (CPQ) waited and waited, but finally unloaded the bomb after Friday's market close that it wouldn't meet analyst earnings expectations of 31 cents a share for its first quarter.

Maybe that's because the news was worse than even the naysayers thought. Compaq announced at 4:30 p.m. EDT that it would only earn 15 cents a share in its first quarter to be reported April 21. "Obviously the company isn't going to meet even the lower expectations it put out from a month ago. We all thought the bad news was out of the stock already," says Craig Johnson, principal of the

Pita Group

and not a fan of the PC group right now.

Compaq had already

made an unofficial preannouncement on Feb. 25, telling a handful of analysts visiting its Houston headquarters that its sales from the first six weeks of the quarter were light. This news sent the stock tumbling 28% to 29 from 41 and knocked the analyst consensus down to 31 cents a share from 35 cents. Revenue, which was $10.9 billion in Compaq's December quarter, will now be around $9.4 billion due to an "unfavorable sales mix," said the company.

Earlier this year, analysts were telling clients that Compaq had fully rebounded from a severe PC inventory glut last spring when it reported 38 cents a share in its December 1998 quarter and that 1999 was going to be a strong year for the company. But Compaq is clearly suffering from weak sales combined with growth coming from low-end desktop products and not from its ramping services business.

The market was caught unaware by the news: Shares of Compaq closed Friday up 1 5/16 to 30 15/16, but they were down 3 to 27 1/2 in after-market trading. Meanwhile,

Dell

(DELL) - Get Report

dropped 3 to 41 in after-hours action.

--

Eric Moskowitz

Successful Debuts

Three Internet-related IPOs debuted today and all three were among the day's leading point gainers.

iTurf

(TURF)

, the online unit of teen clothing retailer

dElia's

(DLIA)

closed up 35 7/16, or 161%, at 57 7/16. Also,

Extreme Networks

(EXTR) - Get Report

, a LAN switching firm, closed up 38 3/8, or 226%, at 55 3/8, and

USInternetworking

(USIX)

, an Internet software outsourcer, closed up 36 1/2, or 174%, at 57 1/2.

In a research report,

Credit Suisse First Boston

analyst Bill Burnham notes that 32 Internet-related IPO deals were filed during March, with seven qualifying as electronic commerce IPOs.

In addition, Burnham said 13 Internet companies went public in the month and generated "a whopping $1.2 billion," or 75% of the $1.5 billion in total Internet IPO proceeds raised in all of 1998. He told

TSC

that by July, between 50 and 60 Internet companies will have gone public this year. He expects close to 100 Internet IPOs for the year, which he says is more IPOs than current public Internet companies.

"It's hard to imagine investors not getting tired" of the IPOs, Burnham says. "The sheer volume of deals suggests the market has to remain red hot for them to be successful."

Burnham says there are a lot of good companies going public, "but there are a lot that you say, 'give me a break,'" though he would not mention any names of some of the more suspect IPOs. He notes that in each of the last three years, the market has "cooled off" at some point in time and the Internet IPO window will close as well.

Moving and Shaking

It was a relatively uneventful day for the tech sector in general and the Internet sector in particular, but with some notable exceptions.

Without a major piece of news behind them, a number of Internet stocks went wild. There appears to be little concern about second-quarter earnings, particularly after

Yahoo!

(YHOO)

gave a solid report on

Wednesday. Day traders generally find one or two momentum plays on any particular day, squeezing the you-know-what out of the short sellers.

Inktomi

(INKT)

, which reports earnings April 15, closed up while

CNet

(CNET) - Get Report

closed up 18 15/16, or 16%, at 134 1/4.

Gains in

theglobe.com

(TGLO)

were easier to quantify. The stock closed up 19 15/16, or 34%, at 78 15/16 after announcing a 2-for-1 stock split.

Among the best percentage gainers,

Point West Capital

, a financial services company, closed up 4 1/2, or 40%, at 15 5/8.

Fourteen Hill Capital

, a majority-owned affiliate of Point West Capital, announced Thursday that it had closed two financings in the first quarter, one a private placement of $500,000 of common stock of

Homeseekers.com

a provider of online residential real estate listings. Homeseekers.com closed up 2 9/16, or 38%, at 9 5/16. Fourteen Hill also purchased $1 million of common stock and warrants in a private placement by

DBS Industries

. DBSS is designing and developing an automated meter reading service utilizing low earth orbiting satellites.

Media Streamers Come Down to Earth (Sort of)

After a torrid run sparked by Yahoo!'s announced acquisition of

broadcast.com

(BCST)

on April 1, stocks in the streaming media sector seem to be cooling off, as profit-takers step in.

After peaking at 213 3/4 yesterday, shares of

RealNetworks

(RNWK) - Get Report

, the leading developer of streaming media software, fell 6 1/4, or 3%, to 207 1/2.

Intervu

(ITVU)

, which provides Webcasting and hosting services for audio and video programming, continued its steady retreat, dropping 1, or 2%, at 57 1/2, after peaking at 71 on April 5.

Another streaming media company receiving a lift after the Yahoo! deal is

AudioHighway.com

(AHWY)

. The five-year-old company, which reported revenues of $139,000 for 1998, aggregates free audio content on its Website and has developed a portable information device, called the Listen Up Player, that delivers audio content. After topping yesterday, shares of AudioHighway.com fell 4, or 12%, at 30 1/8.

Yet one more pipsqueak that's been thrust into the streaming spotlight is the

Visual Data

(VDAT)

.

The Pompano Beach, Fla.-based company has amassed a library of video-based marketing materials and also produces and distributes video press releases. In contrast to its peers, shares of Visual Data have continued to move higher, closing up 4 9/16, or 20%, at 27 9/16.

The value of the company, which reported 1998 revenues of $1.9 million, has more than doubled since late March, when the stock hovered in the $13 range.

--

Spencer E. Ante

As originally published, this story contained an error. Please see

Corrections and Clarifications.