Dueling Fools

Dueling Fools
July 15, 1998

The Compaq Case
Compaq Price (7/14/98): $33 11/16

This computer you're working with now, a Compaq? Many of you are nodding and it's no wonder since Compaq (NYSE: CPQ) is everywhere. The $50 billion company has had its shares of ups and downs recently -- and what better place and time than here and now to watch the highs and lows collide!

This week Chris Rugaber (TMF RFK) and Louis Corrigan (TMF Seymor) are Dueling Fools. Chris believes that good things are in store for Compaq while Louis is hammering away at the Control, Alt and Delete keys in tandem.

And you?

You Get to Vote!

After reading all of the arguments, cast your vote for the winner of the Duel. We'll tabulate results each week and revisit them from time to time to see whether you were right! As always, we invite you to join us in the Dueling Fools Message board to continue the duel.

[Any suggestions, comments, praise, or flames, please send them along to the Dueling Fools Team.]

The Bull...
If I were just a company shill for Compaq, I could talk about its four years of global PC market domination, despite that market's cutthroat price competition. Or, I could note that its server computers are so widely used that, according to its 1997 annual report, "nearly 50 percent of e-mail transmissions, 60 percent of all credit card transactions, 80 percent of all Automated Teller Machine [ATM] transactions and 90 percent of all securities transactions´┐Ż run through Compaq servers." Even allowing for some annual report hyperbole, that's pretty impressive. (Full disclosure: We use some Compaq servers here at the Motley Fool.)
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The Bear...
Investors need to know what they're buying. However, Compaq is no longer a known quantity.

Looking at FY97 results, I see a computer giant that delivered $24.6 billion in sales (up 23%) and $1.35 in earnings per share (up 52%), excluding non-recurring charges. Its PC sales grew at around 63%, or four times faster than the industry overall. Meanwhile, gross margins rose from 25.8% to 27.5%. Operating margins before taxes and charges jumped to 12.3% from 9.7%. Meanwhile, its acquisition of Tandem boosted the enterprise business to 37% of sales in the fourth quarter, helping to counteract margin pressure in the desktop business.
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Results for last week's Philip Morris Duel

Answer Percentage
I can't make up my mind

2%

TMF Ralegh's Bull argument

81%

TMF Parlay's Bear argument

8%

They were both excellent

3%

They were both lame

6%