Analyst: Compaq sitting on excess inventory

Compaq Computer Corp. (NYSE: CPQ) may be sitting on about eight weeks of inventory, and clearing it out could lead to a second quarter loss, according to Ashok Kumar, analyst at USB Piper Jaffray. Shares dipped 1/4 to 23 5/8 on Tuesday morning.

The world's largest PC maker may have as much as 4 weeks of inventory on its shelves and another 4 weeks in its distribution channel. In a report, Kumar said the extra inventory could lead to write-downs and a loss for its June quarter. "The channel is filled SKUs (StockKeeping Units) that are overpriced relative to stret value and obsolete products that can't be moved," he said.

Kumar said Compaq's inventory problems run counter to demand, which remains strong in the retail channel. The analyst added that Compaq's cost structure is hurting it as low-cost PCs remain in demand.

The First Call Corp. consensus estimate of 30 analysts is expecting earnings for the June quarter of 22 cents a share. In the year-earlier period, Compaq earned 2 cents a share for the quarter.

Kumar called present Compaq's efforts to sell more directly as "window dressing."

In its first quarter, Compaq issued an 11th hour profit warning, that precipitated the departure of its chief executive Eckhard Pfeiffer.

In related news, it may take longer than the expected three months to fill Pfeiffer's shoes, the Wall Street Journal reported. Compaq is looking within and outside the company and the computing industry for a new leader, having hired headhunting firm Heidrich & Struggles to help find their new chief.

Compaq shares are down about 43 percent year-to-date.