WSJ says Capellas does not expect to achieve 15% growth this year. Also says it will sell $50-100 million per quarter of its securities each quarter to boost net profits. Must have been reading my posts!
January 31, 2000
Compaq Expects Sales of Corporate PCs
To Grow to 40% of Total by 4th Period
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
HOUSTON -- Compaq Computer Corp., outlining a plan to turn around its unprofitable corporate PC business, expects direct sales of its corporate PCs to grow to 40% of sales by the fourth quarter from 9% currently.
Chief Executive Michael D. Capellas said the business, which had a loss of $448 million on sales of $12.2 billion last year, won't be profitable until the September quarter at the earliest.
Company Profile: Compaq Computer
In a meeting at its headquarters with Wall Street analysts, Mr. Capellas laid out a plan to shift that business rapidly to direct sales, first in the U.S., then in Europe. He also said its big-computers and services business would emphasize round-the-clock operations for e-commerce customers.
Hamstrung by the higher costs of using dealers and distributors, the world's largest PC maker has been losing money and market share in its corporate PC business for the past two years to direct sellers such as Dell Computer Corp.
'Comfortable' With Estimates
Earlier this month, Compaq agreed to pay $370 million to acquire PC assembly and distribution operations from Inacom Corp. to fix its ailing direct PC business. The deal is expected to close by March. "You'll see the Inacom contribution kick in pretty quickly," he said.
In his first extensive remarks to analysts since becoming CEO last June, Mr. Capellas said Compaq will continue to use dealers but will rapidly shift its desktop PCs to direct, aiming to move 60% of its North American sales directly by the end of this year.
For all of 2000, Mr. Capellas said he is "comfortable" with estimates of $1.82 billion, or $1.06 a share, in net income, before special items such as selling securities. Pre-tax profit margins will be about 4% of sales this year, less than half his long-term target of 10% to 12% of revenue.
Mr. Capellas told analysts to expect revenue this year of between $42.4 billion and $43.2 billion, up 10% to 12% from 1999. Longer term, the company aims for a 15% annual revenue increase and operating margins of 11%, but doesn't expect to achieve either this yearMr. Capellas said.
Selling Some Holdings
Compaq, which has an $8.3 billion investment portfolio, expects to sell some of its holdings this year, adding to net income. The company expects to raise between $50 million and $100 million a quarter from such stock sales, he said.
Analysts said the profit and revenue goals are reasonable given the company's PC woes. "If they can pull this [direct-sales] model off, it looks like an attractive opportunity," says computer analyst Charles R. Wolf of Warburg Dillon Read LLC. He said the direct-sales plan assumes that PC dealers won't switch to rivals Hewlett-Packard Co. or International Business Machines Corp. as Compaq's direct sales increase.
While the company fixes its corporate PC problems, the company also said it aims to boost big-computer and services sales by 14% to 17% a year. That business will be crucial to returning to its heyday, said analysts. "It's great if they can get profitability back to the commercial PC business. But at the end of the day, investors won't buy this stock because it's got a PC business with 5% operating margins," said CE Unterberg Towbin analyst James D. Poyner Jr. He said if Compaq could boost its big-computer sales, it should also pull in high-profit service revenue. "The heart of this story is the high-end computers," he said.
Mr. Capellas said a long-delayed upgrade to its Alpha minicomputer line is due out in March and should begin to add to revenue in the third and fourth quarters. The new machines could add $1 billion to total revenue this year, he said. The machine will compete against computers from IBM, Hewlett-Packard and Sun Microsystems Inc |
