Compaq on road to recovery, executives say
By Jeff Franks
HOUSTON, April 27 (Reuters) - After a difficult 1999 in which profits fell and two top executives resigned, Compaq Computer Corp. (NYSE:CPQ - news) is well on the road to recovery, executives said on Thursday at the computer giant's annual shareholder meeting.
They promised to come out swinging in the battle for marketshare against rising computer rivals such as Dell Computer Corp. (NasdaqNM:DELL - news) and Hewlett-Packard Co. (NYSE:HWP - news).
``We are absolutely taking the fight to the streets. This is a great company,'' said Michael Capellas, who took over as chief executive in July after Eckhard Pfeiffer left.
Chairman Ben Rosen said Capellas had brought back the spirit of Compaq's glory days.
``Already we have achieved new energy, new spirit and new direction in the company. We have established credibility with the financial community and we're in the process of restoring our growth and our profitability,'' he told shareholders.
The positive words came two days after Compaq reported first quarter operating earnings of 16 cents a share on revenues of $9.4 billion.
The numbers were not equal to the big gains Compaq routinely reported a few years ago, but they were on target with analyst estimates. The financial world, burned by negative Compaq earnings surprises in the past, responded by issuing several upgrades on the company's stock.
``We got four upgrades yesterday, which I'm very pleased with, and part of that was establishing credibility,'' he said. "We have to get to the point of steady performance, meeting the numbers and being more predictable.
Compaq, while retaining its worldwide lead in sales, has been steadily losing market share to Dell and Hewlett-Packard in recent years, but Capellas said the company will become more aggressive in promoting its well-known name.
He said a new advertising initiative would be unveiled in the next day or two that would be part of an overall plan to spend 1 percent of revenues annually on marketing.
One of Compaq's biggest dilemmas in recent years has been how to respond to Texas-based rival Dell, which has grown twice as fast as Compaq and had better margins by selling direct to consumers instead of through middlemen, as Compaq has traditionally done.
Capellas said Compaq was now selling about 20 percent of its consumer PC's directly and promised that number would grow with time.
``Did we miss the model and not react fast enough? Yes. Are we accelerating the pace and starting to have measurable progress? The answer is also yes. Am I satisfied with it across the world? No, but we're getting there,'' Capellas said.
He also said Compaq was now designing new products ``with very few moving parts,'' which makes them simpler, faster and cheaper to manufacture.
``As you think about where the industry is going, the battle used to be around the delivery model,'' he said. ``The battle (now) is in innovative products design that can be simplified.''
Capellas said he believes the changes in Compaq will bring back luster to its tarnished stock, which has languished below $30 a share for most of the past year. It closed up slightly on Thursday at 29-3/4.
"There's no question the company is undervalued and it's a great bargain,' Capellas told shareholders. |
