Compaq Expects a Loss for Quarter
As It Moves to Realign Its Business
An INTERACTIVE JOURNAL News Roundup
HOUSTON -- Compaq Computer Corp., still struggling amid shifts in the
personal-computer industry, said it expects to post a second-quarter loss and
unveiled a restructuring that will require a big third-quarter charge.
interactive.wsj.com
The giant maker of PCs, which ousted its chief executive officer after a
disappointing first quarter, predicted a loss of 15 cents a share for the quarter.
The news surprised Wall Street analysts, who had predicted Compaq, despite
its problems, would post a 20 cent a share profit.
Moreover, Compaq said it will record a substantial charge in the third quarter
to cover the costs of what it termed a "realignment" of its business. That
revamp is expected to eliminate $2 billion in ongoing operating costs, it said.
It didn't estimate the size of the planned third-quarter charge.
"The operational issues that affected Compaq in
the first quarter continued to influence our
business this quarter," said Benjamin M.
Rosen, chairman and acting chief executive
officer, in a statement. "Pricing pressures in the
PC segment, inadequate revenue growth and a noncompetitive cost structure
are the contributing factors to our expected shortfall," he said.
Analysts, in the past, have faulted Compaq for not moving more quickly to
implement a so-called build-to-order manufacturing plan, a direction that has
been taken by the PC industry as companies complete more sales directly
with customers -- via the Internet, for instance.
Mr. Rosen said revenue and gross margin are expected to be flat to down
sequentially from the first quarter, while operating expenses will increase from
the first quarter, partly because of goodwill amortization costs associated with
Compaq's recent Internet-related acquisitions. In the first quarter, it posted
revenue of $9.42 billion and put gross margins at 24.7%.
In April, Compaq shocked Wall Street by warning that an "industrywide
problem of very competitive pricing" would result in slowing sales and plunging
profits in the quarters ahead. That warning resulted in the ouster of CEO
Eckhard Pfeiffer.
Compaq said on Thursday that its restructuring will create three global
business groups: enterprise solutions and services; personal computers; and
consumer. Each one will have its own "market-driven, profit-and-loss
accountability," the company said.
"The changes we are making today are aimed squarely at the objectives
identified at the outset: to improve execution of our strategy, speed
decision-making, get closer to our customers and accelerate growth. This
also will allow us to reduce costs and have a more concentrated focus on
investment in growth," Mr. Rosen said.
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