Compaq Computer Corp, the biggest personal-computer maker, will fire 1,500 more workers, bringing the job reduction this year to 12 percent, after a slump in European demand caused second-quarter sales to miss forecasts.
The Houston-based company said revenue was US$8.4 billion, less than its forecast for US$9 billion. Profit excluding charges was US$0.04 a share, meeting the average estimate of analysts polled by First Call/Thomson Financial.
Compaq, facing sluggish PC sales and a price war with faster-growing rival Dell Computer Corp, was counting on double-digit percentage revenue growth in Europe to make up for slack US demand. Instead, sales slowed significantly in Europe, particularly in the UK, Germany and Switzerland, said Chief Financial Officer Jeff Clarke.
"It's a very tough market," Clarke said on a conference call. "We continue to see very aggressive pricing across all our regions. It's most apparent in North America and catching up in Europe."
The job cuts announced Tuesday bring the total for the year to 8,500, which will save the company US$900 million a year. The PC maker already planned to eliminate 7,000 jobs this year. Compaq will take a second-quarter restructuring charge of US$490 million related to the cuts. It also reported a US$249 million charge for job cuts in the first quarter.
Compaq's shares rose as high as US$14.25 after the announcement before falling to US$13.93. They had fallen US$0.44 to US$13.76 before the release. The stock has declined 47 percent in the past year.
In last year's second quarter, Compaq had profit from operations of US$362 million, or US$0.21 a share, on sales of US$10.13 billion.
Compaq will report final quarterly results July 25 after US markets close. Nine analysts have reduced their profit estimates for the period in the past month, according to First Call.
Compaq reduced its estimates twice before. In March, Compaq reduced its first-quarter estimate to US$0.12 to US$0.14, less than the US$0.19 estimated by analysts polled by First Call/Thomson Financial. In April, Compaq lowered the second-quarter forecast to US$0.05, less than a third of the reduced forecast of US$0.17 in a First Call survey. Clarke reiterated the second-quarter forecast on June 8.
"They had better learn to forecast better," said Henry Asher, president of money manager Northstar Group Inc, which owns shares of Dell.
Corporations and consumers have reduced spending on PCs as economic growth has slowed this year. Compaq's rivals, Dell and Gateway Inc, are also expected to report lower earnings and sales this quarter than a year ago.
As PC sales slow and profit margins narrow, Compaq is focusing on selling computer servers and storage devices and providing related services. Revenue from services have been a bright spot for Compaq, Clarke said.
"A 9 percent sequential decline in revenue is nothing to be particularly happy about," Joe Beaulieu, an analyst at Morningstar Inc, said in an interview with Bloomberg Radio.
"Estimates have already been revised down several times."
Most of the firings will be among workers that make consumer PCs and those in distribution. Clarke said Compaq will close plants in Houston and Erskine, Scotland, resulting in a reduction of 1,000 employees. The workers least affected will be engineers and direct-sales employees, he said.
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