Compaq's Q2 shipments rise, but profit falls

Compaq Computer has reported a 25% increase in second-quarter sales, but profits were off by 19% due to a charge related to its acquisition of Microcom. Sales rose to US$5 billion in the second quarter ended June 30 from $4 billion in the second quarter of 1996, the company said.

Compaq Computer has reported a 25% increase in second-quarter sales, but profits were off by 19% due to a charge related to its acquisition of Microcom.

Sales rose to US$5 billion in the second quarter ended June 30 from $4 billion in the second quarter of 1996, the company said.

Second quarter profit for the top PC vendor was $214 million, or 75 cents a share, down from $267 million in the second quarter of 1996.

Second-quarter earnings were affected by a one-time charge of $208 million for technology bought in connection with the acquisition of Microcom, Compaq said in a statement.

Excluding that charge, Compaq's second-quarter profit was $422 million, or $1.48 per share, an increase of 58% over the same period last year, the company said. Earnings per share, excluding the one-time charge, beat the average estimate of $1.39 from 32 brokers, according to First Call.

For the first six months of the year, sales were up 19% from $8.2 billion to $9.8 billion, while earnings were up 20 percent from $501 million to $601 million.

The outlook for the second half of 1997 is strong and the company is confident that its new business model will speed up gains in market share and improve profits, President and CEO Eckhard Pfeiffer said in the statement.

"We are now implementing the first phase of optimizing our entire distribution model from design to manufacturing and delivery," said Pfeiffer. "This first phase, known as Build-to-Order, will result in ... a shortened manufacturing cycle time, greater product availability and predictability, lower channel inventory and reduced product costs."

Pfeiffer and other Compaq officials are slated to speak to the press and industry analysts later this morning here in New York, to outline details of the new strategy and roll out new Deskpro 2000 and 4000 PCs at low price points.

Compaq already has tight control over production logistics, but in the highly competitive PC marketplace there's no room for fat, according to analysts.

"With their large manufacturing base of PCs they have the economies of scale to build boxes cheaper than anyone else, but they're looking to squeeze as much as possible from their inventory and channel costs," said Roger Kay, an analyst with International Data Corp.

The new production model is not strictly speaking a direct-sales model, since Compaq is continuing to work with their distributors, noted Kay.

"They're working with their distributors to create a more streamlined distribution model," Kay said.

The strategy however is a response to low-cost inventory controls of companies like direct marketer Dell Computer Corp.

"It's pretty clear they see Dell in the rear view mirror and that's driving their competitive response," Kay said.

Compaq, based in Houston, can be reached on the World Wide Web at http://www.compaq.com/.

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