Compaq Reports 2001 Second Quarter Results
Jul 25 2001 16:25PM
Solid Execution Delivers Measurable Business Model Improvements;
Company Posts 13 Percent Services Growth in Local Currency
HOUSTON, July 25 -- Compaq Computer Corporation (NYSE: CPQ),
a leading global provider of enterprise technology and solutions, today
reported net income from operations of $67 million, or $0.04 per diluted
common share, for the second quarter ended June 30, 2001. Second quarter 2001
revenues totaled $8.5 billion.
"I am pleased with the company's solid execution in this challenging
environment," said Michael Capellas, chairman and chief executive officer.
"We delivered on our commitments to improve the company's business model and
built momentum behind our services and solutions-led strategy. A good example
is Compaq Global Services which grew 7 percent year over year, or 13 percent
in constant currency."
"We successfully balanced the need for stringent cost control -- operating
expenses are at their lowest level in three years -- with continued
investments in product innovation and creative go-to-market approaches, such
as the recently announced Computing On Demand program," Capellas continued.
"In addition, we met consensus EPS even as inventory levels were dramatically
reduced across the entire supply chain. During the first half, inventory
levels were reduced by nearly $1 billion, including more than $500 million of
channel inventory -- while we also improved on-time delivery."
Second quarter gross margin, as a percentage of revenue, was 21.5 percent,
down one point sequentially and two points on a year-over-year basis. This
was due to an aggressive pricing environment and decreased volume, offset by
savings from improved inventory management and revenue mix. Second quarter
2001 operating expenses were $1.7 billion, a decrease of $102 million from the
first quarter of 2001 and $120 million from the same period last year.
The company's operational results exclude a restructuring charge of
$493 million. Including this charge, the company reported a net loss of
$279 million, or $(0.17) per diluted common share.
In the same quarter last year, Compaq reported revenue of $10.1 billion
and net income of $388 million, or $0.22 per diluted common share. Adjusted
for a net after-tax gain of $25 million related to Compaq's investment
portfolio, earnings per diluted common share were $0.21.
Business Outlook
"The permanent improvements we are making in our business model are having
a positive impact now, as well as positioning the company for long-term growth
and profitability with increased financial leverage," Capellas said.
"Nonetheless, as you have heard from others in the industry, this economic
environment continues to be challenging -- coupled with the fact that, for
Compaq, this quarter represents a tough year over year comparison."
"We've seen some stabilization in the U. S. -- with the exception of the
consumer retail segment -- but the market has weakened in Europe and other
geographies," Capellas continued. "In this environment, we are focused on
improving our business model and executing our strategic plans. In the short-
term, the market remains volatile and thus difficult to predict with much
certainty. However, we expect third quarter revenue to be in the range of
$8.0 billion to $8.4 billion and earnings per share of $0.07 to $0.09."
Business Overview
Compaq Global Services revenue grew 7 percent year-over-year, or
13 percent in constant currency. Global Services now represents 23 percent of
the company's revenue, up from 21 percent in the first quarter of 2001,
showing steady progress towards the company's goal to grow services to more
than 30 percent of overall revenue. In certain countries -- including Japan,
the United Kingdom and Switzerland -- services already represent in excess of
30 percent of total revenue.
The company's enterprise computing business was down 21 percent from the
2000 period due to weaker demand, an aggressive pricing environment and
channel inventory reductions. Enterprise computing includes the Industry
Standard Servers Group, Business Critical Solutions Group and Enterprise
Storage Group and represented 32 percent of second quarter revenue.
Of significance in the quarter, Compaq announced the simplification of its
product roadmap through an agreement with Intel Corp. to standardize its high
performance servers on the Intel Itanium(TM) processor family. The company
also continued to invest in product innovation, introducing next-generation
Compaq ProLiant(TM) DL380 and ML370 servers, as well as new TaskSmart(TM)
appliance servers. In June, Gartner Dataquest reported that Compaq's
Enterprise Storage Group was named the world's number one supplier of storage
area networks (SANs) based on sales in 2000.
Revenue in the company's access business -- which includes commercial and
consumer personal computers -- was down 22 percent. Unit shipments of
commercial desktops were up 11 percent year over year, though revenue declined
due to aggressive pricing. Additionally, Compaq extended its leadership in
next-generation Internet access devices, shipping approximately 450,000
iPAQ(TM) Pocket PCs during the quarter, 17 percent of total commercial unit
shipments. Including iPAQ Pocket PCs, total commercial unit shipments in the
second quarter were up 21 percent year-over-year. Losses increased in the
consumer PC segment largely due to the rapid fall of consumer demand,
resulting in the need to dramatically reduce prices in order to decrease
inventory.
Compaq will host a live audio Webcast at 5:30 p.m. Eastern (4:30 p.m.
Central) regarding its second quarter financial results. Details and links to
the Webcast can be found at compaq.com . This
conference call is the property of Compaq Computer Corporation and any
recording, reproduction, or rebroadcast of this conference call is expressly
prohibited by Compaq.
Company Background
Founded in 1982, Compaq Computer Corporation ("Compaq") is a leading
global provider of enterprise technology and solutions. Compaq designs,
develops, manufactures and markets hardware, software, solutions and services,
including industry-leading enterprise storage and computing solutions, fault-
tolerant business-critical solutions, communication products, and desktop and
portable personal computers that are sold in more than 200 countries.
Information on Compaq and its products and services is available at
www.compaq.com .
Compaq, the Compaq logo, ProLiant, TaskSmart, and iPAQ are trademarks of
Compaq Information Technologies Group, L.P. Product names mentioned herein
may be trademarks and/or registered trademarks of their respective companies.
This press release may contain forward-looking statements based on current
expectations that involve a number of risks and uncertainties. The potential
risks and uncertainties that could cause actual results to differ materially
include: worsening global economic conditions, increased competitive
environment and pricing pressures, disruptions related to restructuring
actions and delays in the expansion of Compaq's solutions business model.
Further information on these factors and other factors that could affect
Compaq's financial results is included in Compaq's Securities and Exchange
Commission (SEC) filings, including the latest Annual Report on Form 10-K and
the Quarterly Report on Form 10-Q, which will be filed shortly. |
