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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: PCSS who wrote (34568)	10/12/1998 4:54:00 PM
From: Elwood P. Dowd	Respond to of 97611

Compaq weathering transition By Michael Kanellos Staff Writer, CNET News.com October 12, 1998, 12:50 p.m. PT With the inventory glut behind it and the assimilation of Digital under way, Compaq is expected to report improved earnings of 6 cents a share for the third quarter when it holds its conference call with analysts Wednesday. The third quarter results, which follow a tumultuous first half for the company, will likely be seen as further evidence of a moderate turnaround in the PC market and Compaq's fortunes in general. Despite a worldwide economic crisis, PC sales have slightly accelerated in the second half due to lower prices, according to, among others, International Data Corporation. The large manufacturers such as Compaq have largely been the beneficiaries of this trend. Among the major manufacturers, Compaq will likely recover some of the momentum it lost in the first half of the year. Compaq struggled in the first half because of an inventory surfeit of low-end PCs. As a result, the company reported income of one cent and two cents a share, respectively, for the first and second quarters of this year. Compaq managed to clear most of these machines out by mid-summer, clearing the path for sales of new computers this quarter. In addition, Compaq may be helped by inventory woes of a different kind. Notebook competitors IBM and Toshiba suffered substantial product shortages, according to Vadim Zlotnikov, computing analyst with Sanford Bernstein, which allowed Compaq to add incremental sales. "There have been dramatic shortages of the IBM notebooks and the Toshiba notebooks," he said. "Notebooks will be strong for them (Compaq). Their consumer business was very good." Zlotnikov said he expects the company to report earnings of 6 cents a share on $9.1 billion in revenue. Compaq also experienced some small growth in the consulting division it acquired from Digital. Last quarter, service revenues grew 3 to 4 percent. This quarter, service revenues grew 7 to 8 percent, he added. Still, a complete recovery is far from over. For the same quarter last year, Compaq reported earnings of 36 cents a share on less revenue. Compaq also will likely continue to incur expenses with the Digital transition. Following the Digital acquisition, Compaq announced it would reduce headcount of the combined company by 17,000. So far, only a few thousand workers have been laid off. The company itself is calling the third quarter a "transitional" quarter. The conference call will take place on Wednesday before the market opens.