Gateway Meets Estimates; Compaq Does Even Better
By Tish Williams
Senior Writer
04/18/2002 05:44 PM EDT
Compaq gave investors the luxury of listening to its quarterly report in a blissful state of relaxation.
Back on April 8, the computer maker preannounced that it would beat Wall Street estimates of $7.6 billion and either meet or exceed analyst consensus of a penny a share profits. It was a welcome heads-up in a market that heard nothing good about IT spending in the first quarter. Thursday Compaq delivered with a wider profit and better sales than predicted.
The company turned in $7.7 billion in revenue, as promised, and earned a net profit of $44 million, or 3 cents a share, according to generally accepted accounting principles. Excluding merger-related expenses, Compaq earned 4 cents a share. The finish represented a 9% decline from the fourth quarter's unexpectedly strong $8.5 billion in sales, and a 16% year-over-year drop from the first-quarter 2001's pre-slump $9.2 billion in revenues. Gross margins stayed steady from the fourth quarter of 2001 to the first quarter at 20.6%.
Potential acquirer Hewlett-Packard (HWP:NYSE - news - commentary - research - analysis)announced a more complete set of preliminary proxy contest results Wednesday that showed merger approval edging out opposition by 40 million votes. Some votes still remain to be tallied, and the vote also depends on a lawsuit pending in Delaware Chancery Court in which H-P board member Walter Hewlett has accused CEO Carly Fiorina of improperly coercing Deutsche Banc into changing its vote at the last minute. Compaq contends that its results signal that its customers have not been put off by the uncertainty regarding the future of the Texas boxmaker.
"We have not backed off an inch from making steady improvements to our business model," Compaq CEO Michael Capellas said in a statement.
On the less fortunate side of the computer industry, troubled Gateway at least beat the Street with its $992 million in first-quarter sales, even though it made up a painful 55% year-over-year decline in revenue. Gateway met estimates with a 20 cents-a-share pro forma loss. Including $99 million in special charges, the company witnessed a net loss of 39 cents a share according to generally accepted accounting principles.
Wall Street was expecting a 20 cents-a-share pro forma loss and $971.8 million in revenue.
During its analyst meeting in late February, the cow-spotted computer maker announced its decision to forgo the profitability achieved in the fourth quarter and instead focus on regaining market share. To achieve that, Gateway initially slashed prices below those of industry leader Dell. This was regarded as a successful short-term move, though financially punishing, given Gateway does not share Dell's (DELL:Nasdaq - news - commentary - research - analysis) streamlined expense and distribution structure. According to Robertson Stephens analyst Eric Rothdeutsch, the company "eased off on its aggressive pricing in March," perhaps a signal that the losses involved in rock bottom prices were too drastic. Robertson Stephens has not done banking for the company.
Gateway reported that average selling prices fell sequentially from $1,667 to $1,538 in the quarter, which allowed it to keep unit shipments high. Despite the typically slower seasonal environment of the March quarter, unit sales dropped only 5%. |
