Compaq earnings beat expectations

Following a cost-cutting agenda, Compaq beat Wall Street expectations and posted earnings of $US140 million, or 8 cents per share, for its third fiscal quarter, including special charges and a one-time gain.

Though the company took substantial losses on its commercial PC business, Compaq was able to reduce its operating expenses significantly and begin streamlining its businesses.

Operating expenses in the third quarter were $2.016 billion. Operating expenses decreased from $2.198 billion in the second quarter of 1999 to $1.974 billion on an operational basis in the third quarter, a $224 million, or 10 percent, improvement.

"We intend to remain the number one PC supplier in the world, but may sacrifice market share to increase profitability," said Michael Capellas, the newly appointed CEO at Compaq.

"We are moving aggressively to new business models that will make us more competitive and simplifying the product set and channel model."

This was the first time the company was forced to break out its numbers by business units. Compaq's commercial PC segment reported an operating loss of $169 million during the third quarter, compared to a loss of $225 million in the second quarter, and an operating profit of $116 million in the third quarter of 1998. Commercial PC products accounted for 30 per cent of Compaq's revenue in the third quarter.

Compaq cited several factors for the decline in its commercial PC business, including reductions in channel inventory, aggressive pricing pressure, and the impact of the Taiwan earthquake.

Capellas spent much of the time he used to address financial analysts focusing on a new product mix coming from Compaq in the future. While he admitted that the company missed the boat in selling PCs direct over the Web, he said that the changes in the PC industry have only just begun.

"The most dramatic change in store is with the products themselves," Capellas said.

"There is no doubt in my mind that what we know of as a PC will change. Simpler products and new form factors, and the way we distribute those products will change as well. We are understand the PC model has undergone fundamental changes and has more changes to come - this time we will not stand still."

Envisioning a world of various devices designed to access the internet, Capellas described the company's upcoming offerings as "the best product in our history."

Officials were vague about how exactly Compaq would restructure its distribution processes to eliminate recurring inventory woes, though they did say that selling more systems direct online is part of the plan.

"Everything we are doing is about the internet," Capellas said. "Everything we do will have the internet at its core, or we will not be doing it."

The earnings compared with earnings of 7 cents per share or $115 million in the same quarter last year.

Compaq shares on Nasdaq closed at $US19.31, up 37 cents or 1.98 per cent.

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