OT -- CPQ vs DELL -- what a difference! See below -- very sad.
Wednesday July 28, 10:12 pm Eastern Time
Compaq posts loss, will cut up to 8,OOO jobs
(Adds cost savings goal para 7, details and quote on revenues paras 13-15)
By Jeff Franks
HOUSTON, July 28 (Reuters) - Compaq Computer Corp.(NYSE:CPQ - news),
battered by a brutal price war in personal computers, said on Wednesday it lost $184 million in the second quarter and
announced a massive restructuring that would include cuts of up to 8,000 jobs, or about 11 percent of its work force.
The loss, equivalent to 10 cents a share, was a penny less than the 11 cents a share analysts had expected, but the world's
largest personal computer maker warned it would take a charge against third quarter earnings of $700 million to $900 million
for the sweeping job cuts.
The restructuring, which includes unspecified plant closings, was bitter medicine for the computer group, which has been
losing market share to fast-growing, Round Rock, Texas-based rival Dell Computer Corp. (Nasdaq:DELL - news).
Compaq's stock, which closed fractionally higher at $26 on the New York Stock Exchange on Wednesday, was unchanged
in after-hours trading following the announcement.
''We are aggressively taking the appropriate actions to restore the company's growth and financial performance,'' said
Michael Capellas, who was named last week as chief executive officer to turn the company around. ''The realignment of the
company is fully underway.''
The job cuts -- which could affect more than 11 percent of the company's current work force of nearly 70,000 -- would
''have a positive effect on both gross margin and operating expenses going forward,'' Capellas said.
In a conference call with reporters, he said the job cuts would be completed by year's end and that the company's goal was
to cut $2 billion in annual costs.
Compaq was not the only company reporting plans for massive head count reductions on Wednesday. Electronic Data
Services (NYSE:EDS - news), the world's no. 2 computer services firm, said it was offering early retirement to 8,000
employees in a bid to cut costs.
Compaq's longtime Chief Executive Eckhard Pfeiffer left in April.
Compaq, which warned in June that a major restructuring was coming, blamed its poor showing on pricing pressures, no
revenue growth and a ''non-competitive cost structure.''
The latest results compared with a year-ago net loss of $3.6 billion, or $2.33 a share, after charges for its acquisition of
Digital Equipment Corp.
Total gross margin slipped to 20.5 percent in the quarter, down from 24.7 percent in the first quarter. Operating expenses
rose to $2.2 billion, up from $1.9 billion in the first three months of the year.
The company said it had revenues of $9.4 billion for the quarter, which matched the total for the first quarter when it posted
earnings of $281 million, or 16 cents a share.
Capellas said the company's slow growth was most ''disappointing'' in Europe where sales increased just 6 percent
year-over-year, versus a 32 increase in the United States. A restructuring effort in France and Germany and increased
competition in the United Kingdom were to blame, he said.
Also, Capellas said the company's revenues in computer services, which was supposed to be a strength after the Digital
acquisition, grew just 6 percent from a year ago.
''To be honest with you, we are disappointed in that growth because we have strong capabilities,'' he told reporters.
Capellas, who joined Compaq last August and served as acting chief operating officer until his promotion last week, faces
the formidable task for reshaping a company that has traditionally sold most of its computers through middlemen, while its
strongest competitors sell directly to customers.
In figures released this week, Compaq continues to be the world's dominant personal computer maker, with 13.8 percent of
the global market, but was nearly overtaken in the U.S. market by Dell, the top supplier of direct-from-the-factory,
custom-made PCs.
According to research firm Dataquest, Compaq shipped 16.8 percent of the PCs sold in the United States in the second
quarter, versus 16.4 percent for Dell.
Capellas said Compaq would continue to sell through resellers, but would also beef up direct sales, which have better
margins and require less inventory.
He said Compaq currently sells 15 percent of its computers directly, but would be at 25 percent by year's end and hoped to
eventually achieve 40 percent. |
