Compaq Lowers Q4 Earnings Estimate

Compaq Computer announced Tuesday that its revenue in the fourth quarter will be 8 to 10 per cent below market expectations and earnings will be eight cents per share below analysts' consensus predictions. The company issued the profit warning after the close of the New York Stock Exchange.

Revenue for the fourth quarter, ending December 31, 2000, is expected to be between $US11.2 billion and $11.4 billion, approximately 7 per cent above the same quarter last year but less than market expectations of $12.31 billion.

Earnings from operations, excluding one-time charges, will be between 28 and 30 cents per diluted common share, a 50 per cent gain on the same quarter last year, but about eight cents below the consensus expectation of 36 cents, as reported by analysts polled by First Call/Thomson Financial. Compaq is due to announce its fourth-quarter results on January 23, 2001.

Compaq executives blamed a general softness in consumer confidence in the North American market, a weak Euro and the dot-com meltdown on financial markets for the company's earnings warning.

"We're pulling back on expectations," Michael Capellas, Compaq chairman and chief executive officer, said during an analyst briefing Tuesday afternoon to discuss the profit warning. "But you should look at the adjustment against really aggressive baselines."

Compaq executives said they have a positive outlook for fiscal 2001, but noted that they expect the second half of next year to be stronger than the first - a concession to continuing market weakness that will not let up until after the middle of the year. Compaq reduced its earnings outlook for the coming year to 10 per cent revenue growth, and 25 per cent growth in earnings per share over revised estimates for fiscal 2000.

Some of Compaq's strategic investments, such as those in Internet investment company CMGI and its related assets, have also suffered in the market downturn, the company said. Compaq additionally plans to make downward adjustments in the valuations of some holdings and anticipates taking a non-operating, non-cash charge in the fourth quarter. "The market mentality can be a very powerful thing," said Jesse Greene, Compaq's chief financial officer.

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