Compaq CEO Details Confident 2000
Outlook
By Eric Auchard
HOUSTON (Reuters) - Compaq Computer Corp.,(NYSE:CPQ -
news) the world's second largest computer maker, said it is
targeting a doubling, or perhaps even a tripling of its revenue growth
rate in 2000, the most optimistic projection the company has made
in several years.
Compaq President and Chief Executive Michael Capellas laid out
his growth strategy during the company's annual briefing for Wall
Street analysts and fund managers at its headquarters here.
The new Compaq leader said he had used his first 180 days on the
job to stabilize the company and was now prepared to set the
company once again on a solid growth footing, following two years
of lackluster product growth, management turmoil and disappointing
financial performance.
Compaq's share price closed down 3/4 at 27-3/16, half its year ago
level, but up from a recent low of 18-1/4.
Capellas was comfortable the company could achieve revenue
growth of 10 to 12 percent this year, with an outside target of 15
percent, which would be double or triple 1999's five percent revenue
growth rate.
''Ten to 12 percent growth rate is a reasonable growth rate to
model,'' Capellas said, adding that should everything go according
to plan, Compaq could see 15 percent revenue growth this year.
''That is an opportunity,'' he said of the higher growth goal. ''I like to
be bold, (but) I don't like to be stupid,'' said Capellas, who indicated
he did not want to raise expectations too high, too quickly.
Previously, no analyst had come close to projecting the company's
revenue could grow 15 percent this year.
This growth rate would put Compaq well ahead of the expected
growth signaled by rivals International Business Machines
Corp.(NYSE:IBM - news) and Hewlett-Packard Co.(NYSE:HWP -
news), but only at half the rate of Dell Computer
Corp.(NasdaqNM:DELL - news) and Sun Microsystems
Inc.(NasdaqNM:SUNW - news), its fiercest rivals in the markets for
PCs and Internet server computers, respectively.
Capellas said he was comfortable with the current Wall Street
analysts' consensus 2000 earnings estimate of $1.06 per share,
excluding any one-time charges or gains, or more than triple the 31
cents per share Compaq reported for 1999.
In a news conference after the presentation, Capellas said his
earnings outlook was predicated on the 10 percent revenue target,
not the more optimistic 15 percent goal, raising the possibility that
Compaq could significantly exceed current earnings targets if
everything goes according to plan.
''I'm still giving my comfort level on the $1.06,'' based on the 10
percent revenue growth estimate, he said, responding to a
question.
One key to the company's growth in 2000 will be the progress
Compaq makes in boosting the percentage of its personal
computers and other products its sells direct, especially in its
unprofitable commercial desktop PC business, he said.
Capellas, together with his top operating managers, also made the
case that Compaq is the best positioned computer maker to
capitalize on this year's introduction of Microsoft's next- generation
Windows 2000 corporate software system. He said this optimism is
based on the company's dominant market position in the powerful
computers and data storage systems used to manage Windows
2000.
A third driver of his plan will be the completion of the company's
ongoing cost-cutting program, which calls for the company to
reduce 4,000 jobs in the first half of 2000 to fulfill a 7,000 employee
reduction program already underway.
''Of those three areas, the most critical is the return of profitability
to the PC business,'' Capellas said, in response to a money
manager's question about which of the company's core strategies
were most likely to deliver growth that could push earnings beyond
the $1.06 estimate for the year.
The biggest driver of revenue growth in the coming year will come
from the company's enterprise computing unit, which accounted for
52 percent of revenue in 1999 and the bulk of the company's profits.
He set a target of 14-to-17 percent growth in 2000 for the business.
Revenue at the unit, which consists of powerful servers used to
manage other computers, data storage and related services, grew
just 6 percent in 1999 to $20.1 billion.
The commercial PC business should grow between 12 and 15
percent in 2000 from its 4 percent growth in revenue to $12.2 billion
in 1999, when it accounted for 32 percent of total revenue.
However, consumer PCs, which saw rapid growth in 1999 are likely
to decelerate in 2000, Capellas said, growing between 12 and 17
percent. Last year, revenue in the business grew 22 percent to $6
billion.
Rick Schutte, a financial analyst with Goldman Sachs, said he was
impressed with Compaq's openness, but would likely wait for the
company to demonstrate it can execute its strategy over the next
quarter or two before he advises clients to buy the stock.
He said he found particularly convincing the company's argument
that the Internet market was shifting to Compaq's broad mix of
powerful transaction-handling computers, Web servers and Internet
access devices.
''It's a very interesting story because there's a lot of opportunity
here,'' Schutte said, ''But there are also a lot of challenges.''
Capellas' earnings outlook excludes an expected $50 million to
$100 million in gains on an Internet equity investment portfolio that
the company expects to take in each quarter during the coming
year.
It also excludes the previously disclosed charge of $50 to $60
million to discontinue its planned integration of Microsoft Windows
NT software with Compaq's Alpha microprocessor. Those latter
charges will be allocated in its accounts over the first and second
quarters of this year, he said.
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