UPDATE: Compaq Beats Analyst Expectations in Q4

SAN FRANCISCO (01/25/2000) - Compaq Computer Corp. today reported a profit of 19 cents per share for the company's fourth fiscal quarter, down significantly from a year ago, but better than analysts had expected.

Net income for the period, which ended Dec. 31, 1999, was US$332 million, less than half of the $758 million recorded in the fourth quarter of 1998, when Compaq reported a profit of 43 cents per share, according to a company statement issued today.

Financial analysts polled by First Call/Thomson Financial had expected Compaq to report a fourth-quarter profit of 16 cents per share.

Revenue for the fourth quarter was $10.5 billion, down 4 percent from a year ago, but an improvement of 14 percent sequentially, company officials said in today's statement.

"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," Michael Capellas, Compaq's president and chief executive officer, said in the statement.

Net income for Compaq's full fiscal year 1999 was $569 million, or 34 cents per share, compared with a net loss of $2.7 billion, or $1.71 per share in 1998.

The big difference in results compared to fiscal 1998 is explained partly by Compaq's acquisition of Digital Equipment Corp. in mid-1998.

Revenue for the full fiscal year was $38.5 billion, an increase of 24 percent over 1998. The full-year 1999 results include a $1.2 billion pretax gain from the sale of businesses, which was partially offset by an $868 million pretax charge related to restructuring efforts.

Compaq has been struggling against falling PC prices and vigorous competition from some of its more nimble rivals, notably Dell Computer Corp., which ousted Compaq from the top vendor spot in the U.S. last year, according to market research firm Dataquest Inc. Compaq has also had a tough time integrating Digital Equipment's operations into its own.

The company's fourth-quarter results indicate that Compaq is back on track to recoup its former glory, Capellas said in a conference call this afternoon with press and analysts, although he acknowledged that the company still has "much work to do."

"I see evidence every day of the renewed energy in the company and the growing enthusiasm of our customers," Capellas said.

Among the high spots of the company's fiscal 1999 fourth quarter, Compaq's consumer PC group reported record revenue of $2 billion, up 34 percent from a year ago, to account for around one-fifth of Compaq's total fourth-quarter sales. The consumer PC group saw particularly strong growth in Latin America, where sales grew 98 percent from a year ago, and in Asia-Pacific, where sales grew 85 percent.

Compaq managed to cut operating losses from its commercial PC division in half compared with the immediate prior quarter, to $79 million. That figure compares poorly, however, to a profit of $157 million for that division a year ago.

Fourth-quarter revenue from commercial PC sales was $3.1 billion, up 15 percent sequentially, but down 19 percent from the fourth quarter of 1998.

Compaq aims to return its commercial PC division to profitability again in the second quarter of fiscal 2000, Capellas said in today's teleconference. That goal will be helped by the release of Microsoft Corp.'s long-awaited Windows 2000 operating system, as well as sales of Compaq's new iPaq, a streamlined desktop PC aimed at business users, he predicted.

Also for commercial users, Compaq in the second quarter will begin shipping Wildfire, the codename for its new family of Alpha-based systems, which will be "the fastest server on the planet," Capellas said.

Looking at revenues by region, Compaq enjoyed its biggest growth in Europe, where sales climbed 24 percent. Revenue from North America grew 8 percent and in Latin America by 7 percent, officials said. Sales were flat in China, but grew 21 percent in Japan and 13 percent in Asia-Pacific, officials said.

Compaq's shares closed at $31 per share on the New York Stock Exchange, down $2 from the previous day's close. Today's financial results were announced after the U.S. markets closed.

Compaq, in Houston, Texas, can be reached at +1-281-370-0670, or at http://www.compaq.com/.

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