April 26, 2000
Compaq Profit Rose 16% in 1st Period,
Although Revenue Increased a Slim 1%
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
Sales of investments pumped up Compaq Computer Corp.'s first-quarter
profit while revenue flattened due to a continued slowdown in corporate
computer sales.
The world's largest personal-computer maker said net income rose 16% to
$325 million, or 19 cents a share, from $281 million, or 16 cents a share, a
year earlier. Sales from its investment portfolio added $68 million, or three
cents a share, to the earnings, Compaq said.
The results were in line with Wall Street analysts' profit expectations, as
compiled by First Call/Thomson Financial, but fell short of most revenue
estimates. Compaq's stock rose $3.625, or 14%, to $29.75 in 4 p.m.
Tuesday New York Stock Exchange composite trading.
Compaq, based in Houston, said revenue rose only 1% to $9.51 billion as
corporate sales of PCs and big "server" computers declined due to the
year-2000 changeover that also crimped first-quarter sales at many
companies, including International Business Machines Corp., Unisys Corp.
and Gateway Inc. Compaq's European business also declined.
"While our revenue was affected by [year-2000 concerns], a general
weakness in Europe and continued efforts to reduce our channel inventory,
we met our earnings objectives," said Michael D. Capellas, chief executive
officer.
Tough Corporate Market
Analysts called the results a relief given the tough market for corporate
computer sales. Many analysts had shaved their earnings projections in
recent weeks after Compaq signaled it expected flat operating profit. "It
clearly could have been a lot worse and I think people will look at it that
way," said James Berlino, an analyst at CIBC World Markets Inc.
Operating profit in its big-computer and services unit, which accounts for
half of Compaq's annual revenue, fell 13% to $568 million from $653
million a year earlier as buyers held off big-computer purchases and
European sales slowed.
Ashok Kumar, an analyst at US Bancorp Piper Jaffray, said the revenue
weakness reflects delayed updates to Compaq's Tandem mainframe and
high-performance Alpha computer lines. The big-computer unit "has fallen
into the doldrums in the short term," he said.
Mr. Capellas told analysts that Compaq has orders for 120 new Alpha
computers that it expects to announce on May 16. He also said the
company believes it can sell 200 of the new Alpha models during the
second quarter. Compaq expects to add $1 billion in revenue this year
from the new Alpha systems, which can cost from $20,000 to more than
$1 million.
"There's a lot of demand for the product," Mr. Capellas said.
Gross Margin Trimmed
The lack of big-ticket computer sales and strong growth in consumer PCs
in the first quarter pared Compaq's gross profit margin to 23% from
24.7% a year earlier. Chief Financial Officer Jesse J. Greene Jr. said the
company expects margins to remain depressed level during the second
quarter, with higher-margin Alpha sales showing up in the third quarter.
Mr. Greene also told analysts the company is
comfortable with estimates of an 8% sales
increase to $10.2 billion in the second quarter
from $9.42 billion a year earlier. Analysts
currently expect Compaq to earn $400
million, or 23 cents a share, in the current
quarter, according to First Call/Thomson Financial.
In the corporate PC business, where Compaq has struggled with
lower-cost rivals such as Dell Computer Corp., the company reported an
operating loss of $19 million compared with an operating profit of $25
million in the year-earlier quarter. However, the loss was smaller than the
fourth quarter's $79 million loss.
Compaq said it shipped 3.7 million PCs, down 20% from the 4.6 million
units it sold in the fourth quarter. Michael J. Winkler, senior vice president
for corporate PCs, said the company has reduced its corporate PC sales
while it works on improving operating results.
Some Improvement Noted
Analysts said the PC group results indicated some improvement. "I'm
encouraged by the progress on expenses," said William C. Conroy, an
analyst at Sanders Morris Harris. "Things are moving in the right direction."
Consumer PC profit was flat at $82 million despite a 35% jump in revenue.
The company said its consumer PC sales surged 42% in the U.S. as IBM
and Packard Bell NEC Inc. exited from retail-store sales.
The company didn't identify the source of its investment-stock sales.
However, during March, its venture-capital unit filed notices with the
Securities and Exchange Commission to sell one million shares of Internet
Capital Group LLC at a time when the shares were trading at $110.
Write to Gary McWilliams at gary.mcwilliams@wsj.com |
