Jan 27, 1999 (Tech Web - CMP via COMTEX) -- The benefits of
Compaq's Digital acquisition
showed up in the fourth quarter bottom line.
According results released before the market opened Tuesday, the
Houston-based computer
maker took in a profit of $758 million, or 43 cents a share, for the
quarter ended Dec. 31. That
easily beat the 37 cents earnings predicted by First Call's survey of 32
analysts.
Compaq's stock got a boost Tuesday after the company announced
plans to expand its AltaVista
unit and take it public. But after rising initially Wednesday, Compaq
shares were caught up in a
broad market retreat and were down 15/16 to 48 5/16 shortly before
noon.
"There's very, very little about Compaq's fourth quarter that isn't
positive," said Southwest Securities
analyst Cody Acree, who said he plans to boost his 1999 earnings
estimates for the company and
raise his price target on Compaq stock into the 57 to 60 range, from
53 currently. "They saw
significantly better than market growth in almost every segment."
Fourth quarter revenue rose 48 percent year-over-year, to $10.9
billion. The company reported
total sales out of its distribution channels grew 43 percent -- more than
triple the growth of the
computer market as a whole. Compaq's consumer PC business saw
100 percent growth out of the
channel, compared to just 15 percent for the overall consumer PC
market, according to analyst
estimates.
Compaq dominates the burgeoning sub-$1,000 PC market and in the
long run, should see its other
PC lines get a boost from that, Acree said. "They're building
mindshare, and that only benefits
Compaq, because eventually, those sub-$1,000 users upgrade," he
said.
Company executives said they met their goal of getting profits out of
the Digital acquisition by the
fourth quarter. Digital's high-margin businesses, such as servers, helped
Compaq increase its gross
margin to 26.4 percent, despite a continued downward spiral for PC
prices.
The acquisitions of Digital and Tandem, Acree said, give Compaq
product lines that let the company
accept lower margins on PCs, especially compared to competitors
such as Gateway or Dell, who
still rely on PCs for the vast majority of their revenue.
Compaq also boosted its bottom line by cutting costs -- operating
expenses fell to 18 percent of
revenue, compared to 23 percent in the previous quarter, and
inventory turnover increased to a rate
equal to 15.9 times a year, compared to 12.4 times in the previous
quarter.
Now that Digital has been smoothly absorbed, Compaq's main
competition looks more like IBM,
rather than Dell, analysts have said. Compaq executives echoed the
sentiment on Tuesday.
"We enter the new year ready to completely unfold and deploy the
strategy we have been working
on for the past year and a half," said Eckhard Pfeiffer, president and
CEO of Compaq. "We are
completely engaged as a full line global IT provider and strategic
partner to our customers."
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