ELWOOD --- THE 5.4 billion charge is real ---Compaq to Take $5.4 Bln in Charges for DEC Purchase (Update1)
Bloomberg News
June 11, 1998, 5:28 p.m. PT
Compaq to Take $5.4 Bln in Charges for DEC Purchase (Update1)
(Adds details, comment from Compaq CFO, analyst comment.)
New York, June 11 (Bloomberg) -- Compaq Computer Corp. said
it plans to take $5.4 billion in charges for its acquisition of
Digital Equipment Corp., plus an unspecified charge for a
restructuring that includes 2,000 Compaq job cuts.
The Digital charges include $2 billion for cutting 15,000
jobs and $3.4 billion for writing off research and development.
Analysts and investors who attended a meeting about Compaq's
plans said the restructuring charge may be as high as $2 billion
for trimming Compaq jobs and facilities, and could include the
write down of some excess PC inventory, though Compaq said that
charge will probably be less than $2 billion.
Compaq, the No. 1 PC maker and now the world's second-
largest computer maker behind International Business Machines
Corp., has been struggling as demand slows and PC prices fall. As
the company completes its $9.1 billion purchase of Digital,
investors are looking for signs that Compaq can successfully
integrate the two companies, keep key Digital customers and get
its own business back on track.
''I'm hopeful. Compaq has better management than Digital and
it can potentially do a whole lot more with the technology and
the customer base,'' said portfolio manager Lisa Rapuano of Legg
Mason Inc., which owned 3.8 million shares of Compaq and
2 million shares of Digital before the acquisition. ''But I
haven't seen Compaq get their own house in order yet.''
The company shipped too many machines to dealers and
distributors late last year, and then got stuck when PC demand
waned. The weaker-than-expected sales erased Compaq's profit in
the first quarter. At the meeting today, Compaq reiterated its
plans to reduce PC inventory to four weeks by the end of this
month.
''At one time I was worried that we would have too much
Compaq inventory and too much Digital inventory -- I am not
worried about that now,'' said Compaq Chief Financial Officer
Earl Mason.
Mason said any inventory write-down will be ''small,'' and
the company will disclose specifics of the restructuring charge
when it reports second-quarter results July 15.
Houston-based Compaq also reiterated that it expects to
break even before charges in the second quarter. The company said
it expects the Digital business to start adding to earnings by
the fourth quarter, and analysts estimate the company can save $2
billion to $2.5 billion from combining the two companies.
Lack of Detail
Still, analysts and investors said they didn't get as many
details as they would've liked from the meeting, and the
successful integration of the companies, continued management of
inventory and retention of important customers will determine how
successful the transaction will be.
''This all sounds like a good plan, but it's still wait and
see,'' said analyst Daniel Kunstler of J.P. Morgan Securities,
who rates the stock ''market perform.''
Following the acquisition, Compaq will have about 67,000
employees, after the 15,000 cuts at Digital and 2,000 at Compaq.
Intel Corp. also is taking 2,000 employees with its acquisition
of Digital's Alpha microprocessor business.
''The Compaq job cuts were unexpected. It's icing on the
cake in terms of cost reduction.'' said analyst Mark Specker of
SoundView Financial Group, who has a ''buy'' rating on the stock.
''I think things are getting better.''
Compaq also told analysts it has a new logo and will soon
unveil a branding campaign that focuses on the ''Q'' for quality.
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