Compaq stock staggers
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March 9, 1998: 1:55 p.m. ET
Analysts say computer maker overestimated U.S. market potential
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NEW YORK (CNNfn) - Compaq Computer Corp. stock tumbled Monday after the computer maker warned its first quarter results will not meet Wall Street's expectations.
Compaq, the world's largest supplier of personal computers, said late Friday it expects to break even in the first quarter, well below the 35-cents a share profit expected by Wall Street and the 27-cents a share profit reported in the year-ago quarter.
The warning was the third by a major technology company in a week. Intel Corp. and Motorola Inc. warned last week that their first-quarter results would also be weak.
Compaq (CPQ) stock tumbled 2-3/8, or 8.6 percent, to 25-1/4 in mid-afternoon trading.
In its warning, Compaq said revenues for the first quarter would be flat from the year ago period, reflecting sluggish sales to corporate customers in North America.
"It's obvious that this is a cataclysmic failure of revenues," said Stephen Dube, a technology analyst at Wasserstein Perella Securities.
"They overshipped into the channel in the U.S. market. Companies like IBM are much more adept at doing that. They [Compaq] took a gamble and they lost."
Dube said he had downgraded his rating on Compaq's stock from buy to hold.
Meanwhile, the Federal Trade Commission issued a request Monday for more information from both Compaq and Digital Equipment Corp. regarding their impending merger. Although neither company believes the request will delay the merger, which is expected to close in the second quarter, analysts are taking a guarded view of Compaq.
"We believe that investors should proceed gingerly with regard to the Compaq story," said J.P. Morgan analyst Daniel Kunstler. He downgraded his rating on the company to "market performer" from buy.
The Houston-based company was expecting robust sales in the first quarter, so it cut prices and pushed lots of PCs to resellers and distributors late last year. But resellers are still burning off old inventory and are not buying any more.
-- from staff and wire reports
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