Wall Street Journal - a fuller version of the report that was being circulated yesterday evening with some additional mild bullish (if idiosyncratic) spin by Kumar and another analysts. It provides details of the 1,600 personnel cuts, and expands the "15% growth" remarks to suggest "15-17%". The final sentence points out that growth in 1999 was 24%. Given that it was a disastrous year, the 15% predicted by Capellas for year 2000 seems even more eccentric. I really do think he is being ham-fisted in trying to play the Micrsoft/Intel lower expectations game.
The opening para may seem the same but read the whole piece for the changes. I have boldfaced some points.
January 26, 2000
-------------
Compaq Fourth-Quarter Net Fell 56%,
But Operating Profit Matched Forecasts
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
Compaq Computer Corp. reported its fourth-quarter net income fell 56% to $332 million.
The Houston computer maker earned 19 cents a diluted share, compared with a profit of $758 million, or 43 cents a diluted share, for the year-earlier period. The latest results include a gain of $50 million, or three cents a share, from stock sales.
Analysts had projected a profit, excluding the gain, of 16 cents a share, according to First Call/Thomson Financial, so results were in line with expectations. The so-called whisper numbers circulated on several Internet stock sites ranged as high as 20 cents a share.
In after-hours trading Tuesday, Compaq fell $1.50 to $31 after changing hands at $32.50, up 12.5 cents, at the 4 p.m. New York Stock Exchange close.
Chief Executive Michael D. Capellas said the latest results reflect six months of tough cost-cutting. Operating expenses were 18.2% of sales, down from 23.3% in the June quarter but up from 16.4% a year earlier. The company eliminated about 1,900 jobs during the period to cut costs and expects to cut its work force of 67,000 by an additional 1,600 this quarter, he said.
Mr. Capellas, who became CEO in June following the ouster of Ekhard Peiffer for the company's poor performance, said first-quarter revenue will be lower than the fourth quarter, reflecting the seasonal slowdown in sales of personal computers. Compaq doesn't expect its hard-hit corporate PC business to be profitable until sometime after June 30, he said.
The company's goal is to increase annual sales by a "sustainable 15% to 17% growth rate," Mr. Capellas said. He expects revenue to increase about 15% this year. He said he also aims to reduce Compaq's operating expenses to between 11% and 13% of sales. "Do we get there this year? Probably not," he said. "That's the model we will drive to."
Compaq continues to struggle in the corporate PC market, falling behind rival Dell Computer Corp., of Round Rock, Texas, in the U.S. last year. The corporate PC unit posted a $79 million operating loss for the fourth quarter, compared with a profit of $157 million a year earlier. However, the latest loss narrowed from the $225 million operating loss in the June quarter.
Sales fell 3.5% to $10.48 billion for the fourth quarter from $10.86 billion a year earlier. Still, revenue was slightly higher than many Wall Street analysts expected, reflecting a 24% jump in home-PC sales and a only slight drop in big-computer and services sales. "Considering all the hand-wringing over Y2K, these guys came out pretty good," said James D. Poyner Jr., computer analyst at securities firm CE Unterberg Towbin of New York
Profit at Compaq's big-computer and services unit fell 17% to $714 million from $863 million a year earlier. The unit, which accounts for more than half of Compaq's $38.5 billion in annual revenue, largely glided through the year-2000 slowdown that knocked some other computer makers for a loop. Its sales slipped 3% to $5.3 billion from $5.47 billion a year earlier.
Compaq's home PC business</b. -- the world's largest PC operation -- turned in strong revenue gains and contributed a $69 million operating profit, up $5 million from a year earlier. Unit sales rose 40% from a year earlier, though revenue rose just 24% to $2 billion from $1.63 billion a year earlier, reflecting declining PC prices.
"They've laid the foundation for a gradual recovery," US Bancorp Piper Jaffray analyst Ashok Kumar said. The key "is to resuscitate revenue growth," he said. Compaq faces an uphill climb. Microsoft Corp.'s Windows 2000 operating software is expected to be released soon and Mr. Kumar expects that to depress PC server sales through June.
For the year, Compaq swung to net of $569 million, or 34 cents a diluted share, from a loss of $2.74 billion, or $1.71 a share, a year earlier. The latest results include a $1.2 billion pretax gain and a $868 million restructuring charge, while 1998 results include $3.6 billion in acquisition-related charges.
Revenue rose 24% to $38.5 billion for 1999 from $31.17 billion for 1998, reflecting the first full year that Compaq owned Digital Equipment Corp.
Write to Gary McWilliams at gary.mcwilliams@wsj.com |
