CPQ will take hit Monday
3/6/98 Compaq Warns Price Cuts In U.S. Market Will Hurt
1st-Quarter Re
HOUSTON -(Dow Jones)- Compaq Computer Corp. late Friday warned
it expects to report only break-even results in the first
quarter on flat sales compared with a year ago, reflecting price
cuts as the company fought for market share in the fiercely
competitive North American commercial sector.
The disclosure by the nation's leading personal computer
maker, which came after the close of U.S. markets Friday, marked
the third-straight day that a leader in the technology sector
warned of disappointing first-quarter earnings. Chipmaking giant
Intel Corp. issued its warning Wednesday, and semiconductor and
telecommunications concern Motorola Inc. followed suit Thursday.
However, unlike the previous two earnings warnings, which the
companies blamed on problems associated with the Asian crisis,
Compaq's problems are home-grown.
The prediction for break-even results for the first quarter
falls far below the Wall Street mean estimate for earnings of 35
cents a diluted share, according to a survey of 31 analysts by
First Call. The First Call mean estimate for Compaq's second
quarter is for earnings of 38 cents a share.
The outlook is also far worse the year-earlier quarter, when
Compaq posted a profit of $387 million, or 27 cents a share, on
revenue of $4.81 billion. Year-ago per-share results were
adjusted to reflect two stock splits.
The PC seller said its outlook for the second quarter remains
"cautious" as well, as market conditions remain competitive.
Nonetheless, Compaq said it fully intends to expand its business
and add market share in 1998.
"We looked closely at our market and business plan once it
became clear that sales out of our North American commercial
channels were not meeting our expectations," said Eckhard
Pfeiffer, Compaq's president and chief executive officer. "We
are putting in place price reductions and aggressive promotions
in the first and second quarter to reduce these channel
inventories and accelerate the implementation of our Optimized
Distribution Model."
Compaq said it seeks to achieve channel inventories that
support that distribution model by the end of the second
quarter. The company said timing its pricing and promotional
actions to coincide with the closing of its $9.6 billion
acquisition of Digital Equipment Corp. (DEC) "will position us
to take full advantage of that merger."
After Intel's profit warning Wednesday, Wall Street analysts
said it appeared the Santa Clara, Calif.-based company had been
caught off guard by an unforeseen buildup in computer
inventories. Aaron Goldberg, an analyst at market researcher
Computer Intelligence Corp., said data show computer inventories
at U.S. distributors rose significantly in October and again in
January, the latest month for which data are available.
Shares of Compaq (CPQ), which closed up 50 cents Friday at
$27.625, were unavailable for after-hours trading after the
announcement. Compaq's shares are about 20% off their
mid-February level of $35, despite a rise in the overall market.
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