Compaq Computer Corp could be facing a second-quarter loss due to excess inventory, according to an analyst who follows the company closely. Ashok Kumar of US Bancorp Piper Jaffray notes that the PC giant has about eight weeks of inventory between its own warehouses and those of its distributors. The company will likely have to write down the value of the machines, which could lead it into the red for the quarter, something inconceivable just a few months ago.
Analysts surveyed by First Call were expecting earnings of $0.22 per share – with some, such as CS First Boston, projecting EPS as high as $0.27 – but Kumar is currently looking for just $0.03 from the Houston-based company. Kumar asserts, however, that a loss of as much as $0.10 is a distinct possibility. In the first quarter, Compaq’s earnings were $0.16, far below initial expectations of $0.35 as pricing pressures and weak corporate demand took their toll on the bottom line. The removal of chief executive Eckhard Pfeiffer and several other top executives followed the poor showing.
Compaq itself has provided no guidance for the quarter, but Kumar told Bloomberg Business News that the chances of a loss are better than 50-50. He reckons that now would be the opportune time for a massive write-off before hiring a new chief executive, giving the company a clean slate and the ability to blame its recent financial woes on the previous regime. Compaq shares slipped as much as $1.375, or nearly 6%, Tuesday before recovering slightly to close down $0.938 at $22.938. Just four months ago the shares were trading at over $50.
