El,
As you so aptly frequently put it, FWIW
Mr. Rosen said that the search for a new CEO is "well along" and that the
company expects to make an appointment soon. While new CEOs often
reorganize a company shortly after they arrive, Mr. Rosen said: "The CEO
we recruit to run this company will be one who is fully sympathetic with the
changes we're making."
Sympathetic and much more!
June 18, 1999
Compaq Computer Expects Loss
Of About $260 Million in Quarter
By EVAN RAMSTAD
Staff Reporter of THE WALL STREET JOURNAL
Compaq Computer Corp. warned it will post a loss of up to 15 cents a
share, or around $260 million, for the second quarter because of higher
expenses and lower-than-expected revenue, reflecting a shift to selling
directly to customers.
The company also said it scrapped the organizational structure created by
Eckhard Pfeiffer, who was ousted as chief executive officer in April. In
addition, it said it expects to take a substantial third-quarter charge for
layoffs and other moves intended to help slash $2 billion in annual costs.
While Compaq didn't elaborate, some analysts have said it may have to
cut 9,100 jobs to get profits back on track.
The moves underscore the depths of the
troubles at the big personal-computer maker,
which is struggling to shift its sales methods as
it also assimilates last year's purchase of
Digital Equipment Corp.
Though one analyst said last week that a
quarterly loss was possible, Thursday's news
still caught most investors off guard. Analysts generally were expecting a
second-quarter profit of 20 cents a share, according to a survey by First
Call. Further, the decision to put in place a new management structure
before hiring a new CEO also surprised many observers.
Still, the actions prompted little movement in Compaq's stock price, which
was battered in April when the company warned it would report lower
first-quarter earnings. Shares of Compaq, which is based in Houston,
closed at $22.50, up 25 cents, in New York Stock Exchange composite
trading Thursday, well below its 52-week high of $51.25.
Benjamin M. Rosen, chairman and acting CEO, said Compaq's revenue
and gross profit margin in the latest quarter would be flat to slightly down
from the first quarter. Based on that information, analysts calculated
Compaq's loss stemmed from a massive jump in operating expenses, with
estimates of the increase ranging from $300 million to $500 million.
Compaq executives acknowledged that operating expenses did rise, but
declined to discuss specifics until the company reports its quarterly results
on July 28. Some analysts theorized that Compaq has paid upfront price
guarantees to PC dealers to cover the rest of the year, but on a discounted
basis. The guarantees protect dealers from price cuts after they accept
computers.
"A lot of that is discretionary under [accounting] rules," said Ashok
Kumar, an analyst at US Bancorp Piper Jaffray in Minneapolis. Last
week, Mr. Kumar said Compaq could show a loss of 10 cents a share or
more for the second quarter after inventory write-downs.
Others said the jump in expenses is hard to unravel. "I don't know how
they could spend that much," said Charles Wolf, an analyst at Warburg
Dillon Reed in New York. "It is truly puzzling."
Meanwhile, Compaq said it scrapped its complex matrix-management
structure that included both product and geographic divisions, replacing it
with three global product groups and a sales organization that works for all
of them. The four units will report for the time being to Michael Capellas,
acting chief operating officer.
Mr. Rosen said that the search for a new CEO is "well along" and that the
company expects to make an appointment soon. While new CEOs often
reorganize a company shortly after they arrive, Mr. Rosen said: "The CEO
we recruit to run this company will be one who is fully sympathetic with the
changes we're making."
Shortly after Compaq reported its first-quarter results, directors fired Mr.
Pfeiffer, and most of the senior managers who reported to him later quit.
On Wednesday, Hans W. Gutsch, the company's top human-resources
manager and Mr. Pfeiffer's closest confidant, retired. And Thursday,
Andreas Barth, the company's top executive in Europe, retired after being
passed over for a top post in the restructuring.
Peter Blackmore, the chief of Compaq's North American sales unit, was
chosen to lead the overall sales force. The product divisions will be led by
their current executives: Enrico Pesatori for enterprise systems, including
the big computers of Digital and Tandem Computers Inc., which Compaq
acquired in 1997; Michael Winkler for PCs aimed at commercial
customers; and Michael Larson for PCs and other products aimed at
consumers.
Compaq also plans to create a new business unit for electronic-commerce
products and services and beef up its customer-service operation.
While the new structure reduces its complexity, Compaq is still trying to
streamline its work force. Executives aimed to eliminate 19,700 jobs in the
year after absorbing Digital last June. Through March, they had cut 14,200
jobs and more have occurred since, a spokesman said, although a precise
number won't be available until the end of the quarter.
Mr. Rosen declined to say how many jobs might be cut under the newly
announced restructuring, which the company will pay for in the third
quarter. But the prospect of further job cuts shows the difficulty Compaq
has experienced in making the Digital acquisition pay off.
Compaq's gross profit margin, which was expected to rise on the strength
of Digital's high-margin products business, has fallen instead. In the first
quarter of this year, the gross margin was 24.7%, compared with 26.4% in
the fourth quarter of 1997, just before the Digital deal was announced.
Meantime, Compaq's multiyear effort to increase sales directly to
customers is also sputtering. Dealers upset by the prospect of being
circumvented by the company steered buyers to the computers of other
companies. Mr. Rosen said Compaq aims for such direct sales to account
for 25% of revenue in the fourth quarter, up from about 15% currently.
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