Compaq posts loss, cuts up to 8,000 jobs

Compaq Computer has announced a second-quarter loss of $US184 million, or 10 cents per share, as a result of PC pricing pressures, inadequate revenue growth and an increase in expenses. The company is to reduce its workforce by 6,000 to 8,000 employees and take a restructuring charge of $700 million to $900 million.

Compaq Computer has announced a second-quarter loss of $US184 million, or 10 cents per share, as a result of PC pricing pressures, inadequate revenue growth and an increase in expenses. In addition, the company announced that it will reduce its workforce by 6,000 to 8,000 employees and take a restructuring charge of $700 million to $900 million in the third quarter.

Worldwide sales for the quarter, which ended June 30, were $9.4 billion, and total revenues for the quarter grew by 17%, the company said in a statement.

A year ago, the company reported earnings of $32 million, or 2 cents per share, for the second quarter.

A survey of 30 analysts polled by First Call estimated Compaq would report a loss of 11 cents per share for the latest quarter.

Michael Capellas, Compaq's newly-installed president and chief executive officer, said the job cuts, out of a total work force of almost 70,000 people, were necessary to get the company back on track financially.

"I am confident we have an aggressive plan to restore profitability and increase growth," Capellas said in a telephone conference call. "We have the ability to offer a complete portfolio of Internet capability. We have end-to-end alignment around enterprise personal computing, and we have extraordinarily cool new products in the consumer space."

The realignment will help the company institute a strategy that includes timely product delivery and cost reduction, he said.

The chief factors driving the losses were inadequate revenue growth, a decline in gross margins, and increasing operating expenses, Capellas added.

Intense price competition in the commercial PC market, an increase in warranty expenses associated with several PC products no longer shipping, costs from discontinued programs and penalties related to some long-term purchasing contracts resulted in a drop in the total gross margin from 24.7% in the first quarter to 20.5% in the second quarter, the company said.

Operating expenses increased to $2.2 billion in the second quarter over $1.9 billion in the first quarter. Factors contributing to the rising expenses included completion of year 2000 safeguards, increased spending on promotional events and advertising, costs associated with discontinued business ventures, AltaVista goodwill amortisation, and incremental accounts receivable allowances.

Enterprise-related revenues increased 11% year-over-year, with strong growth in server and storage segments. Commercial PC revenue growth was 19%.

North America revenue increased 32% over the same period last year, Capellas said. Latin America revenue grew by 17% and Asia-Pacifc revenue grew by 14%. Europe, Africa and Asia regions grew only 6%, he said.

Continued competition in the PC market with companies such as Dell Computer Corp. and uncertainty fanned by the delay over the appointment of a new chief executive officer may hurt Compaq in the coming months, said one industry analyst.

"They've (Compaq) been in a world of hurt and the chickens are coming home to roost," said Rob Enderle, an analyst with Giga Information Group in Santa Clara, California.

In June, Compaq announced that it would post a second quarter loss estimated at 15 cents per share and that it would restructure into three business units -- Enterprise Solutions and Services, Personal Computer and Consumer.

Compaq stock was up .56 points to $25.94 on the New York Stock Exchange today.

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Compaq, in Houston, Texas, can be reached at + 1-281-370-0670,or at http://www.compaq.com

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