Pfeiffer blames market for earnings shortfall

Compaq Computer experienced an earnings shortfall in the first quarter as a result of general industry slowdown and reduced pricing, Eckhard Pfeiffer, chief executive officer of the company, said.

"The shortfall happened both in sales as well as in reduced pricing throughout the quarter, obviously affecting the top line as well as the bottom line," he said. "This is not the first time the industry goes (sic) through that type of experience where we see a slight reduction in market demand. It is not huge. It is several percentage points."

On Friday the company announced that its financial results for the first quarter, which ended March 31, would be lower than expected, with revenues estimated at $US9.4 billion [B] and earnings per share at 15 cents. Analysts polled by First Call had predicted Compaq would report earnings of 31 cents per share.

Hewlett-Packard reacted to Compaq's news with a statement of its own, saying that it has achieved its revenue goals in its PC business, while improving profitability during the second quarter which ends April 30.

"We are not seeing the weakness some of our competitors are reporting," said Duane Zitzner, president and CEO of HP Computing Products, in the press release. "We have delivered growth that is on plan and profits that are above plan."

Pfeiffer, however, insisted in his conference call that "the market grew slower than the projections from last year for the first quarter."

The shortfall was primarily in the corporate segment, not the consumer segment which has been on target with earnings projections, according to Pfeiffer.

"Obviously, we saw the heaviest pricing pressure on the commercial PC side at the low end, which generated higher volume at lower prices," he said. "We have a somewhat heavier mix towards the low-end on the product side ... in addition to the pricing pressure, that explains the sales as well as the margin shortage."

Pfeiffer was optimistic about the future, though.

"Clearly, we believe that we have been through a typical first quarter. Somewhat slower demand and somewhat aggressive pricing," he said. "There will be most likely demand increases, we believe, in the second half (of the year) in the consumer sector and small business sector where Y2K is not the issue."

The lower than anticipated demand for Compaq computers was mainly in the US, with demand in Europe about what was expected and improved demand in Japan and the Far East, according to Pfeiffer.

He declined to answer specific questions about the financial figures, deferring them to April 21, when the company will announce its first quarter earnings.

When asked if the process of integrating Digital Equipment Corp into Compaq had contributed to any difficulties, Pfeiffer said it had not.

"Yes, we have not yet one system full up and running in terms of accounting and general ledger systems. We are working on that and that has not really been a major factor in the outcome for the quarter," he said. "We are on target with everything happening around the world" as far as integrating Digital.

Pfeiffer also said relations with channel partners were good despite the company's moves to sell direct to customers.

"The relationship with the channel is excellent. Let me say that very loud and clear," he said. "There may be one or two disgruntled resellers someplace... The overall picture is it is working very well."

Analysts said Compaq's lumbering integration of Digital may have hurt the company, but not as much as its transition to direct sales, lower prices and customers holding off their purchases to wait for systems based on the newest microprocessor from Intel, the Pentium III.