From tomorrow's WSJ:
January 24, 2001
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Compaq Posts Big Loss, Cuts Outlook,
But Inventory Levels Buoy Stock Price
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
Compaq Computer Corp., the world's largest personal-computer maker, reported a fourth-quarter net loss of $672 million after a huge charge, and again lowered its outlook for this year in the face of economic weakness.
Dell Computer Corp. issued its own fourth-quarter earnings warning, blaming slackening demand for computers and a softening economy. The sector's woes have touched most of the major players, including Hewlett-Packard Co., Gateway Inc. and Apple Computer Inc., plus chip giant Intel Corp. and software giant Microsoft Corp.
The Houston company took a $1.8 billion charge for a write-down of investments in Internet conglomerate CMGI Inc. Excluding the charge, Compaq earned $515 million, or 30 cents a diluted share, compared with $332 million, or 19 cents a share, a year ago. The profit was in line with the company's reduced expectations.
Compaq slashed its outlook for this year in the face of weakening consumer and business confidence. It expects sales to rise between 6% and 8% from last year's levels, down from the 10% gain it had forecast just a month ago.
Profit for the year, reflecting weak sales expected in the first six months, should be between 95 cents and 99 cents a diluted share, the company said. Wall Street analysts were expecting full-year profit of $1.17 a share, according to First Call/Thomson Financial.
Compaq released results after the end of regular trading. In after-hours trading, investors were cheered the company wasn't suffering from inventory overhang, despite a sharp slowdown in PC sales. Compaq said it had about four weeks of unsold PCs at dealers and retailers, well below the level that analysts feared would depress results this year.
Compaq shares were up sharply at $24; its shares had risen 23 cents to $20.05 in 4 p.m. composite New York Stock Exchange trading.
Michael D. Capellas, Compaq's chief executive, said, "We managed really well. Any time you can improve gross margin and reduce inventory in a difficult market, it's a good thing." He said the company expects operating profit for the first quarter ending March 31 to be in line with Wall Street's expectations of 21 cents a share.
Revenue Climbs 10%
Revenue for the latest quarter rose 10% to $11.53 billion, from $10.48 billion in the year ago period.
Last month, the company warned it wouldn't meet Wall Street's projections, as home-PC and small business customers cut back purchases. It also signaled its intent to write down its stock holdings in CMGI, North Andover, Mass. It holds about a 13% stake in CMGI, which has seen its shares crumble in the past year.
While Compaq last quarter held on to its leading share of world-wide PC sales, market researcher International Data Corp. estimates its unit sales rose just 4%, the smallest gain of major suppliers. Archrival Dell Computer Corp. moved to within a single percentage point of Compaq's 13% share of the business, estimates IDC.
Dell said Monday it would give up profit margin to take share from rivals. However, Compaq executives said the company will walk away from unprofitable sales and expects rivals to lessen pricing pressure. "We think the industry will be more settled out, recognizing this is the most reasonable approach of all," Executive Vice President Michael J. Winkler said in a conference call with investors.
Despite the slowdown and price-slashing, Compaq's corporate PC business grew and remained profitable. Business PC revenue rose 11% to $3.47 billion. Profit for the unit was $113 million, in contrast to a loss of $19 million a year ago.
'Significantly More Efficient'
"It suggests that the commercial PC operations have become significantly more efficient than the Compaq of a year ago," said Steven M. Fortuna, a computer analyst with Merrill Lynch & Co.
In its big-computer and storage business, revenue rose 20% to $4.11 billion. Operating income soared to $722 million from $439 million in the 1999 quarter.
Mr. Capellas said the company expects consumer PC sales, which accounted for 18% of revenue last year, to remain weak. The business had a loss of $6 million despite a 3.5% rise in revenue to $2.04 billion in the fourth period.
But David Bailey, research analyst at Gerard Klauer Mattison, said the company's outlook "banks on a second-half rebound, which is far from certain in our opinion." Mr. Bailey said that Compaq's big-computer and storage sales have been buoyed by pent-up demand by existing customers for a long-delayed new model. |
