Merrill Cuts Compaq to 'Near-Term Neutral'

Analyst Steve Fortuna says the downgrade is based on a bleak near-term outlook for the computer maker company

Merrill Lynch cut Compaq (CPQ ) to near-term neutral from accumulate, and keeps long-term accumulate.

Analyst Steve Fortuna sees weakness at least for the next two to three quarters. He says Compaq's sales and profits clearly have been hurt by global economic weakness and the brutally competitive pricing environment driven in large part by Dell. Fortuna says recent improvements in operational efficiency, inventory reduction and cost cutting are not sufficient to drive sustained profitability in the current environment. He thinks the proposed merger with Hewlett-Packard has contributed to some of Compaq's weakness. Fortuna expects that merger-related weakness could get worse over the next couple of quarters.

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