1/24/01 - Compaq Computer Battles Tough Market to Post Earnings
Gains
Jan 24, 2001 (Houston Chronicle - Knight Ridder/Tribune Business News via
COMTEX) -- Despite a tough season for computer makers, Compaq Computer
saw revenues rise 10 percent for the quarter and net income climb 55 percent,
bolstered in part by strong sales of its most powerful machines.
Revenues were $11.5 billion for the quarter while net income was $515 million, or
30 cents per share, excluding a one-time charge.
The company warned in December that its results wouldn't reach the
36-cents-per-share profit previously expected, but it ultimately beat lowered
expectations of 28 cents, as compiled by First Call/Thompson Financial.
"They produced a decent outlook in a rough environment, despite what the
competitors said," said Dan Niles of investment bank Lehman Bros. in an analyst
conference call on Tuesday.
Most computer companies issued warnings for the last quarter of 2000, citing a
lack of consumer confidence, a saturation of newer products in customers' hands
and some hesitation on the part of companies to spend their full technology
budgets.
Gateway and Apple Computer issued warnings earlier this month, while Round
Rock-based Dell Computer announced Monday that it now expects to report
earnings of 18 cents to 19 cents a share, short of the 26 cents its executives
had predicted at the quarter's start.
Compaq also took a $1.8 billion noncash charge for the quarter on the declining
value of its stake in Internet holding company CMGI. Including the charge, the
company reported a net loss of $672 million, or 39 cents per share. The company
reported revenues of $332 million, or 19 cents per share, for the same quarter in
1999.
Compaq stock hit a 52-week low of $14.30 following the December warning, but
since then it has climbed, closing at $20.05 on Tuesday.
Compaq emphasized the strong results from its enterprise computing products --
the high-margin, high-powered computers that run large networks. Those
revenues rose 16 percent for the quarter to $4.1 billion
Chairman and Chief Executive Officer Michael Capellas said 50 percent of all
revenues and 90 percent of profits for the quarter came in server and storage
products.
"Our server and storage revenue grew 20 percent year-over-year across all our
high-end product lines," Capellas said.
Commercial personal computing revenues grew a more modest 9 percent, from
$3.1 billion to $3.4 billion. The company's consumer group increased its revenues
from $1.9 billion to $2.03 billion, but broke a string of 17 consecutive profitable
quarters by reporting a loss of $6 million. In 1999, it recorded a profit of $69
million.
Executive Vice President Mike Winkler said those results were an aberration and
that profitability would return later this year.
Revenues from global services, the division that provides high-tech consulting
and customer service to Compaq clients, dropped 4 percent to $1.8 billion for the
quarter and 2 percent for the year to $6.9 billion. Much of this business came to
the company following its acquisition of Digital Equipment in 1998, and has
proved to be costly and time-consuming to integrate into Compaq.
Top competitor Dell gained on Compaq's No. 1 position in worldwide market share
in 2000, based in part of aggressive price cuts, but Winkler said the company
wouldn't play that game. He notes that revenues continued to grow despite the
pricing pressures.
"We will not price down at lower levels to chase market share," Winkler said. "We
know that kind of share is fleeting and lasts only until the next buying decision is
made."
Capellas put it more bluntly.
"Profitable growth is the name of the game," he said. Compaq plans to still
provide customers with good values, but it plans to make its mark in other
developing niches such as hand-held computers, as it is with its PocketPC, and
in smaller corporate desktops, such as the iPaq, he said.
Looking ahead, Chief Financial Officer Jesse Greene said he expects first-quarter
2001 sales of about $9.6 billion, and full-year 2001 sales growth of between 6
percent and 8 percent.
"The year is likely to be back-end loaded," Greene said. "For the first half of the
year, we see (sales growth) in the 3 to 5 percent range, and for the first quarter
we project revenues of $9.6 billion and earnings per share consistent with
analysts' estimates of 21 cents."
Not all analysts were as optimistic. In his most recent report, Niles of Lehman
Bros. projected the next quarter to come in at 18 cents per share for Compaq,
based on continuing pricing pressures.
Bill Shope with ABN Amro notes that Dell's manufacturing and distribution model
puts it in a better position than Compaq to grow more quickly as prices and
demand remain low.
"In this scenario, we believe that Compaq's margins will come under pressure and
should continue to be hurt until PC demand firms up and pricing eases," Shope
wrote in a report.
Ashok Kumar with U.S. Bancorp Piper Jaffray says Compaq has lost momentum to
Dell in the overall market.
"Its only savior now is the AlphaServer line," he said, referring to Compaq's most
powerful line of computers.
Company officials say they're prepared to weather ongoing sluggishness,
however, particularly in the U.S. market. Greene noted that 58 percent of the
company's revenues for the fourth quarter came from markets outside the United
States, with Europe being the strongest.
Compaq also was able to manage costs and keep inventories low in the fourth
quarter by cutting back on production in the first week of December, Capellas
said.
"We did see this coming and took measures to prepare," Capellas said.
By Tom Fowler
To see more of the Houston Chronicle, or to subscribe to the newspaper, go to
chron.com
(c) 2001, Houston Chronicle. Distributed by Knight Ridder/Tribune Business News.
-0- |
