April 23, 2001 5:00 PM PDT

Compaq shaves target, trims more jobs

PC maker Compaq Computer reported quarterly earnings Monday that missed lowered analyst expectations by a penny and announced it would eliminate 2,000 more jobs.

Compaq reported a profit of $200 million, or 12 cents a share, on revenue of $9.2 billion, excluding a one-time charge for restructuring and investment gains. Analysts polled by First Call had expected a profit of 13 cents a share on revenue of about $9.14 billion.

Combined with job cuts announced earlier, Monday's announcement means the PC maker will shed 7,000 jobs, 4,500 through layoffs and the rest through attrition.

"Our plan now is to eliminate about 7,000 positions" Jeff Clarke, Compaq's chief financial officer, said in a conference call after the earnings announcement. The majority of the job cuts will come through an ongoing consolidation of the company's commercial and consumer PC divisions. Most of the cuts will be finished by the end of next week, he said.

The additional job cuts are part of a five-step plan to reduce costs, reduce inventory, introduce more aggressive pricing, increase product innovation, and beef up its services organization, the company said in a statement.

PCs proved to be Compaq's weak point. The company's access business group, which handles corporate and consumer PCs, accounted for $4.4 billion, or 48 percent, of Compaq's revenue, but lost $82 million. In the same period last year, revenue came to $4.7 billion, but the group made $15 million.

Overall, "we'll be much more aggressive with pricing and programs to drive demand in our core markets," Michael Capellas, Compaq's chairman and CEO, said during the conference call.

One area where Compaq sees to gain back some steam is servers.

"We are getting more aggressive with industry-standard servers, particularly in the U.S.," Capellas said.

"We will go after (market) share, particularly" with small and midsized businesses, he said. "No, we are absolutely not losing money in that business."

Services represented 21 percent of Compaq's first-quarter revenue. Capellas wants to step that up.

"Our long-term goal is 30 percent" of revenue, Capellas said. "We intend to be very aggressive in this space." Compaq will make acquisitions in the services area if necessary, he added.

"We want a number of them to occur" this year, said Peter Blackmore, executive vice president at Compaq.

Including a restructuring fee of $249 million and $75 million in net investment income, the Houston-based PC maker earned $78 million, or 5 cents per share, in its first quarter, which ended March 31.

In the same quarter last year, the company reported a profit of $296 million, or 17 cents a share, on revenue of $9.5 billion.

"We expect the second-quarter (revenue) to be approximately $9 billion," Capellas said. "This includes a $300 million reduction in inventory."

Compaq lowered expectations in early March. At that time, the company predicted first-quarter income of 12 cents to 14 cents per share on revenue of between $9 billion and $9.2 billion--down about 4 percent from 2000. The company previously forecast revenue of $9.6 billion for the quarter.

Compaq shares closed regular trading Monday down 86 cents, or 4 percent, to $20.65.

Compaq, like other major computer manufacturers, has been affected by the slowdown in PC sales.

The company gave up its No. 1 position in worldwide PC sales to rival Dell Computer during the first quarter in an extremely sluggish market. Compaq grew by only 0.3 percent worldwide and lost ground in North America, according to Gartner. Meanwhile, Dell used aggressive pricing to help grow by 34.3 percent worldwide and 30.7 percent in the United States.

Dell's lead puts it ahead of Compaq in worldwide market share by less than one percentage point, with a 12.8 percent share vs. Compaq's 12.1 percent share.

Despite the global surge from Dell, Compaq still enjoys the top PC spot in Europe.

Compaq has said that servers, storage and services will become the company's mainstays in the future. Revenue from the enterprise computing group, which handles servers, was relatively flat, declining slightly to $2.9 billion. Operating income, however, dropped nearly in half, from $262 million for the same period last year to $132 million this year.

Revenue from services grew by 4 percent to $1.9 billion, but income in the group grew by more than 19 percent, to $254 million from $212 million.

News.com's Michael Kanellos contributed to this report.

 

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