Winnitzki lowered his earnings estimate for the company's second quarter from 5 cents per share to 2 cents, saying he expected sales to be only $8.6 billion for the quarter, compared with the $9 billion he had previously predicted. That would represent a 15 percent year-over-year drop in sales.
Winnitzki also lowered his earnings estimates for 2001 and 2002 from 62 cents and $1 per share to 50 cents and 85 cents per share, respectively.
"Data from a number of other IT companies, as well as from our PC industry and distribution sources, suggests that overall PC demand trends remain weak in the first two months of (the second quarter) and have yet to bottom," he wrote in a research note.
Add to that Compaq's plans to cut channel inventory by $300 million in the quarter, and previous estimates are no longer "realistic" he wrote. But he added that the inventory moves, which Compaq announced in April, are "correct...from a long-term perspective."
Winnitzki expressed concern about the impact an impending price war could have on Compaq. Gateway announced a promotion last week pledging to beat advertised prices for PCs offered by Compaq, Dell Computer, Hewlett-Packard, IBM, Sony and Toshiba.
"One concern we have is that while PC demand may improve in the second half of the year, PC fundamentals could lag due to the aggressive pricing actions in the industry," Winnitzki wrote.
Analysts have been concerned about PC demand for a while; Merrill Lynch analyst Steve Fortuna recently cut growth predictions for the PC market for the year.
But today, Fortuna was optimistic about Compaq, issuing a positive note after a field trip to the Houston headquarters.
He did, however, caution that "there could be some risk" to Compaq's ability to meet revenue estimates for the quarter because of the the inventory-reduction plan.
He quoted Compaq CEO Michael Capellas as saying that "Compaq's pricing actions are now largely complete and should be felt in the market within the next few weeks in their entirety. There are no additional pricing actions planned."
He added that Capellas stated he would "walk away from unreasonably low pricing" for commercial PCs, with some "strategic" exceptions.