Compaq expects loss, announces restructuring

Compaq Computer warned yesterday of an expected loss for its second fiscal quarter, and announced plans for a major restructuring that will result in three distinct business units, each responsible for its own profit and loss.

Compaq blamed pricing pressures in the personal computer segment, inadequate revenue growth, and a non-competitive cost structure for the expected shortfall. The company said in a statement that it expects to report a loss of 15 US cents per share for the quarter ending July 28, 1999, while revenues and gross margins are expected to be flat to down sequentially.

To help the PC manufacturer get back on track, Compaq will undergo a major reorganisation that will split the company into three global business groups -- Enterprise Solutions and Services, Personal Computer, and Consumer -- each with a separate, market-driven profit-and-loss accountability.

The company expects to take a "substantial restructuring charge" in the third quarter of this financial year in connection with the realignment. Once completed, the realignment plan is designed to eliminate $US2 billion in ongoing operating costs, Benjamin Rosen, Compaq's chairman and acting chief executive officer, said.

"The actions we are taking are designed to take full advantage of the breadth and depth of Compaq's capabilities to restore the company's growth and financial performance," said Rosen.

Yesterday's news follows a spate of departures of high-profile executives at Compaq, starting in April with the surprise resignation of longtime CEO Eckhard Pfeiffer and Chief Financial Officer Earl Mason.

On Wednesday, Hans Gutsch, senior vice president of human resources, organisation and environment, retired from Compaq, effective immediately. In his 11 years with the vendor, Compaq's payroll grew from 2,000 to 70,000 employees, and Gutsch was credited with playing a major role in orchestrating the company's global infrastructure.

"In the two months since the change of management at the company, we have taken a deep look into the strengths and challenges of Compaq," said Rosen. "We have determined that significant structural changes are required to enable this company to realise its enormous potential and secure its position as the preferred information technology partner for global customers."

Operating issues affecting the computer maker in the first quarter have continued to dog the company, and Compaq has "not performed to (its) potential," Rosen said.

The newly formed Enterprise Solutions and Services Group, headed by Enrico Pesatori, senior vice president and group general manager, is being formed through the integration of the company's Enterprise Computing Group and Compaq Services. The new group will be responsible for the delivery of Compaq's NonStop eBusiness solutions and the products and services that make up those solutions.

The Personal Computer Group will continue to be led by Mike Winkler, senior vice president and group general manager. The Consumer Group will continue to be headed by Mike Larson, senior vice president and group general manager.

Additional elements of the company's realignment include:

-- the creation of a global sales and marketing group with responsibility for sales processes across all business group lines;-- the establishment of a dedicated organisation to manage all of Compaq's electronic commerce activities;-- the creation of a customer advocacy organisation, combining Compaq's quality and customer satisfaction organisation with its customer advocacy initiatives.

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