Compaq's Q3 profits plunge

Compaq Computer's net income dropped 78% to $US115 million in the quarter ended September 30, its first full quarter since completing the acquisition of Digital Equipment. But the company expects profits to improve in the fourth quarter, when it will focus on completing the integration of Digital into Compaq's operations . Compaq announced net income of $115 million or 7 cents a share, sharply down from $517 million or 33 cents per share in the third quarter of 1997.

Compaq Computer's net income dropped 78% to $US115 million in the third quarter, ended Sept. 30, its first full quarter since completing the acquisition of Digital Equipment.

But the Houston-based company expects profits to improve in the fourth quarter, when it will focus on completing the integration of Digital into Compaq's operations .

Compaq announced net income of $115 million or 7 cents a share, sharply down from $517 million or 33 cents per share in the third quarter of 1997. However, income was slightly higher than the 6 cents a share predicted by First Call's survey of 30 analyst estimates.

The PC manufacturer's sales totaled $8.8 billion, an increase of 36% over the same period the previous year, Compaq said in a statement. Compaq saw strong revenue growth in sales from its distribution channels, which it said grew 38 percent year-on-year, as well as in its services business, the company said.

Compaq completed its acquisition of Digital in June, and as a result reported a loss of $3.6 billion [B] in the second quarter ended June 30.

One analyst said that Compaq's financials were not surprising, given their task of bringing an older, established company like Digital into Compaq.

"They're still working at integrating Digital into their own organisation and trying to get the people to work effectively with one another," said Amir Ahari, senior analyst at market researcher International Data Corp. in Framingham, Massachusetts.

However, Ahari was concerned about Compaq's low year-to-date revenue, given that it now can count Digital's sales as its own.

"The real troubling sign is the fact that last year, in and of itself Digital made $3 billion, $1.6 on product and $1.4 on services," Ahari said.

Extracting that figure from Compaq's shows only a $5.7 billion revenue for Compaq for this year, when last year they did $6 billion, he said.

"The good news is the Digital acquisition is really helping Compaq financially," Ahari said.

Going forward, Ahari said he tended to agree with Compaq that profits can be expected to improve next quarter, thanks in part to holiday shopping.

"If the US market continues to do well ... then fourth quarter is typically a good quarter for these hardware companies," he said.

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

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