Compaq's Earnings Beat Wall St. Estimates

FRAMINGHAM (01/26/2000) - Compaq Computer Corp. yesterday announced better than expected fourth-quarter 1999 results amidst continuing troubles in its core commercial PC business.

The Houston-based company reported profits of $332 million on revenue of $10.5 billion for the period ended Dec 31.

Compaq's fourth-quarter revenue was 4% lower than what the vendor reported for the same period last year, when its revenue topped $10.9 billion. But fourth-quarter earnings per share of 19 cents still beat earlier Wall Street consensus estimates of 16 cents per share.

Compaq closed 1999 with profits of $569 million on revenue of $38.5 billion, compared with a loss of $2.7 billion against $31 billion for 1998.

Compaq's full-year 1999 results include a $1.2 billion gain from the sale of some of its businesses. But the gain was at least partially offset by an $868 million restructuring charge, according to a release announcing the results.

"During the second half of this year, we took aggressive action to return Compaq to profitable growth, and fourth-quarter results reflect our initial success where it matters most -- in the marketplace," said Michael Capellas, Compaq's president and CEO, in a prepared statement.

Still, Capellas acknowledged that the company has some work ahead of it in terms of growing revenue and profit margins.

Revenue for Compaq's commercial PC group -- which accounts for about 30% of the company's sales at $3.1 billion -- was down 19% from the fourth quarter of 1998. The group reported an operating loss of $79 million for the fourth quarter, compared with a profit of $157 million in the fourth quarter of 1998.

Still, the numbers were an improvement over a third-quarter loss of nearly $170 million for the group, Capellas said.

Compaq's 1999 purchase of PC distributor Inacom should boost its direct marketing capabilities (see story). And technologies like Compaq's low-cost iPaq Internet PCs (see story) and Windows 2000 should contribute to a revival of the group's fortunes, Capellas said.

Meanwhile, revenue from Compaq's Enterprise Solutions and Services Group (ESSG), at $5.3 billion, was down 3% year on year and up 8% sequentially.

Segment operating income, at $714 million, was also lower than numbers the previous year by 17%. Enterprise product revenue was approximately $3.5 billion, a decline of 5% year on year.

Compaq's ESSG -- which accounted for 51% of its fourth-quarter revenue -- represents most of the high-end server technologies acquired from Digital Equipment Corp. and Tandem Computers Inc.

Compaq's consumer products group posted record revenue of $2 billion -- a 24% gain from the previous year. The consumer business, which accounted for 19% of Compaq's fourth-quarter revenue, generated profits of $69 million, compared with $64 million the previous year.

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