Compaq?s shares were hammered on Nasdaq on Monday, following its unexpected first quarter profits warning on Friday, but the company also dragged other suppliers in the PC industry down with it.
The PC vendor?s stock closed down $6.875 at $24.0625, but also hurt shares in rival Dell, which fell $1.75 to $41.8125 and also Gateway, which dropped $2.875 to $69.875 as the markets became jittery.
Shares in Intel were also adversely affected due to fears that the continued popularity of very low cost PCs would hurt its revenues too. The chip giant saw its shares fall $4.1875 to close at $61.25 even though most analysts do not believe that its first quarter will disappoint them or that earnings will fall below expectations of about $1.10 per share. Compaq is Intel?s largest customer.
And several analysts did refute Compaq?s claim that slow demand for its business PCs (see VNU Newswire, 10 April, 1999) was the real cause of its profits warning.
They pointed to integration problems with its Digital Equipment acquisition and "misguided" steps that the company took last autumn to sell its products directly to the business sector, which had displeased resellers. This would indicate that the current situation may not be a one off, but continue into subsequent quarters.
Other analysts said they expected Compaq?s gross margins to be only about 22.5 per cent, similar to rivals Dell and Gateway, despite the acquisitions of the high margin Digital Equipment and Tandem businesses.
This suggests that sales of higher priced servers, which carry gross margins that are at least double those of PCs, are not counteracting falling PC margins. This is likely to lead to an expansion in the cutbacks currently underway at the company and a reevaluation of its direct sales efforts.
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