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Compaq pounds top techs
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April 12, 1999: 5:48 p.m. ET
PC giant weighs on top rivals, chip makers in wake of big profit warning
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NEW YORK (CNNfn) - Compaq Computer shares tumbled Monday after the nation's top PC maker stunned Wall Street analysts by warning it won't match their first-quarter profit targets.
More than 111 million Compaq shares changed hands on the New York Stock Exchange Monday, a record for the big board.
When the dust settled, Compaq Computer (CPQ) ended the day at 24-1/16, down 6-7/8, or 22 percent. Compaq late Friday told investors that first quarter profits would equal about 15-cents a share, about half of what analysts expected.
In a conference call Monday to flesh out the profit warning, Compaq President and Chief Executive Eckhard Pfeiffer said while the company expects market conditions to be competitive, "we expect to expand the business and grow market share."
"We knew by the end of February ... that the quarter was going to be back-end loaded," he said, referring to the fact that sales were earlier than expected. "The preliminary results clearly did not meet our expectations."
Pfeiffer said the stiff competition, combined with a less profitable sales mix and lower unit prices led to lower gross profit margins for the quarter.
Earl Mason, Compaq's chief financial officer, said inventory levels, a key gauge of how strong a PC vendor's sales are, are likely to be "flat" from the fourth quarter level.
Compaq, which is still in the throes of integrating Digital Equipment Corp., which it bought last year, said it expects to report first-quarter results on April 21. Integration of Digital is expected to last about six more months, said Pfeiffer.
PC vendors overall ailing
While there had been other signs of trouble among PC makers in the quarter, Compaq's warning brought them into full display. Many in the sector have struggled amid a tough market climate and the rise of the sub-$1,000 PC.
In an effort to debunk concerns about the sector, Pfeiffer said: "The PC era is not over, to be very clear... we see continued growth in PC's for years to come."
Analysts have also expressed concern that Compaq's effort to tap into Internet sales will rankle its vendors in the more traditional, retail channel.
Pfeiffer said that's not to worry. "The relationship with the channel is excellent, let me say that loud and clear .... That there is one or two disgruntled reseller somewhere is not the overall picture," he said.
Analysts said the fallout from Compaq's warnings should have been contained to just that company.
"We can not ignore that there are price pressures in the PC, that is sort of a foregone conclusion, everybody has been seeing it," said Andrew Barrett, a technology strategist with Salomon Smith Barney.
"But in this specific instance, I think that you are looking at more of a Compaq issue," he said. Nevertheless, the other major PC vendors also took a beating Monday.
Among the premier direct vendors, Dell Computer (DELL) shed 1-3/4 to 41-13/16 and Gateway (GTW) fell _2-7/8 to 69-7/8; and as for Dow issues, IBM (IBM) fell 2-7/8 to 183-7/16 and Hewlett-Packard (HWP) sank 1-1/4 to 68-3/8.
And chip-sector players weren't immune to Compaq's woes. Bellwether Intel (INTC) fell 4-3/16 to 61-1/4 as BancBoston Robertson Stephens cut the stock to a "long term attractive" from "strong buy."
Intel is expected to report first-quarter earnings after the close Tuesday. Analysts polled by First Call Corp. expect the company to post earnings of 55 cents per share.
Meanwhile, Level One Communications (LEVL) shed 3-23/32 to 49-23/32, Altera (ALTR) tumbled 4-3/4 to 65-1/16 and chip-equipment giant Applied Materials (AMAT) fell 3-13/16 to 62-11/16.
Financial 'Net players cash in
Elsewhere in the tech sector, online trading and financial services providers rose Monday as investors warmed to their growth prospects of those companies.
Leading the way was a purveyor of Internet-based banking NetB@nk (NTBK) rocketed 39 to 158-1/2.
Chief Executive Officer D. R. Grimes told CNNfn.com NetB@nk is adding about 7,500 new accounts per quarter, giving the company a "great chance" to exceed its target number for accounts in 1999.
Elsewhere, among the online brokerages, Ameritrade (AMTD) roared up 26-11/16 to 142-1/4 and E*Trade Group (EGRP) gained 5-7/8 to 96. Atlantic Bank & Trust (ATLB), which last week unveiled plans to tap online banking, rose 15-7/8 to 35-1/2. 
-- by staff writer Jamey Keaten
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