Compaq Computer Corp, which this year lost its position as the top personal-computer maker, said its second-quarter profit fell 81 percent as sales slumped and the company cut prices to keep up with Dell Computer Corp. Compaq said third-quarter revenue will miss forecasts.
Profit from operations fell to US$67 million, or US$0.04 a share, from US$362 million, or US$0.21, a year earlier, Compaq said.
Sales dropped 17 percent to US$8.45 billion. Third-quarter revenue will decline to US$8 billion to US$8.4 billion, while analysts polled by First Call/Thomson Financial expected US$9.3 billion.
PHOTO: BLOOMBERG
As PC demand drops and profit margins narrow, Compaq has fired thousands of workers and combined units to cut costs and become more efficient.
Chief executive Michael Capellas is reorganizing the company to increase sales of corporate consulting and computer services, a more profitable business that provides a steadier revenue stream than PC sales, which fell 22 percent in the period.
"It doesn't look very good," said Louis Kokernak, senior equity strategist at Martin Capital Advisors, which owns more than 5,000 Compaq shares. "The guidance has been very poor for the tech sector. This looks like more of the same." The company said earnings this quarter will be US$0.07 to US$0.09 a share, compared with analysts' average forecast for profit of US$0.09, according to a poll by First Call.
Profit in the second quarter matched analysts' reduced forecasts.
In last year's third quarter, the company had net income of US$550 million, or US$0.31 a share, on sales of US$11.2 billion.
"It's an understatement to say that we're in the midst of an extremely challenging global market," Capellas said on a conference call.
Capellas said Compaq's restructuring is almost complete, except for consolidation of plants and reduction of some employees in Europe. The company said it has fired 5,100 of the 8,500 workers it said it would eliminate this year. Compaq will make improvements in costs in the third quarter and the full effect will be felt by the fourth quarter, Capellas said.
"We are ahead of our program," he said.
Compaq said inventory management helped generate operating cash flow of US$584 million in the second quarter.
The company reduced its inventory by US$300 million and a further US$400 million at distributors in the quarter. That brings the total inventory reduction to US$1 billion in the first half.
Compaq is planning to cut inventory by US$200 million more at distributors in the second half.
"They're poised to be a significant beneficiary if and when the macro environment is better," said David Katz, chief investment officer of Matrix Asset Advisors Inc, which has 751,000 shares.
Compaq said purchases by major corporate customers in the US are becoming more stable, particularly for Internet infrastructure and wireless-access devices. "We are starting to see major customers launch or continue with their programs," said Capellas.
Revenue declined because of weakness in the US, worsening economic conditions in Europe and reductions of inventory, said chief financial officer Jeff Clarke.
Sales of services, or setting up computer networks and managing systems and software for other corporations, increased 6.8 percent in the second quarter to US$1.94 billion. Global services was Compaq's only division to report higher sales.
"They're trying to be a powerhouse consulting firm," Kokernak said. "Just about every hardware and software maker is trying to do that." Sales at Compaq's PC division, the company's largest revenue generator, fell to US$3.82 billion from US$4.91 billion. The group had an operating loss of US$155 million, compared with operating income of US$44 million a year earlier.
The company has been losing PC market share to Dell, which has said it will keep slashing prices to lure buyers during the slump in demand. Compaq and Gateway Inc have been reducing prices to keep up, hurting profitability.
In the second quarter, Dell garnered 13 percent of the worldwide PC market by unit shipments, compared with Compaq's 11 percent, researcher Dataquest Inc said last week. Dell was the only PC maker whose sales increased during the period.
"Even considering the brutal market conditions, I'm disappointed with our performance in the consumer market, particularly in our retail business," Capellas said.
Sales of servers and storage devices, which have wider profit margins than PCs, fell 21 percent to US$2.7 billion on weaker demand, aggressive competition and reductions of inventory among distributors. Operating income in the division was US$74 million, down from US$383 million in the same period last year.
Including a restructuring charge of US$493 million, Compaq had a loss of US$279 million, or US$0.17 a share, in the recent period. In last year's second quarter, a gain of US$25 million made net income US$388 million, or US$0.22. Sales in the year-ago period were US$10.1 billion.
NO-LIMITS PARTNERSHIP: ‘The bottom line’ is that if the US were to have a conflict with China or Russia it would likely open up a second front with the other, a US senator said Beijing and Moscow could cooperate in a conflict over Taiwan, the top US intelligence chief told the US Senate this week. “We see China and Russia, for the first time, exercising together in relation to Taiwan and recognizing that this is a place where China definitely wants Russia to be working with them, and we see no reason why they wouldn’t,” US Director of National Intelligence Avril Haines told a US Senate Committee on Armed Services hearing on Thursday. US Senator Mike Rounds asked Haines about such a potential scenario. He also asked US Defense Intelligence Agency Director Lieutenant General Jeffrey Kruse
INSPIRING: Taiwan has been a model in the Asia-Pacific region with its democratic transition, free and fair elections and open society, the vice president-elect said Taiwan can play a leadership role in the Asia-Pacific region, vice president-elect Hsiao Bi-khim (蕭美琴) told a forum in Taipei yesterday, highlighting the nation’s resilience in the face of geopolitical challenges. “Not only can Taiwan help, but Taiwan can lead ... not only can Taiwan play a leadership role, but Taiwan’s leadership is important to the world,” Hsiao told the annual forum hosted by the Center for Asia-Pacific Resilience and Innovation think tank. Hsiao thanked Taiwan’s international friends for their long-term support, citing the example of US President Joe Biden last month signing into law a bill to provide aid to Taiwan,
China’s intrusive and territorial claims in the Indo-Pacific region are “illegal, coercive, aggressive and deceptive,” new US Indo-Pacific Commander Admiral Samuel Paparo said on Friday, adding that he would continue working with allies and partners to keep the area free and open. Paparo made the remarks at a change-of-command ceremony at Joint Base Pearl Harbor-Hickam in Hawaii, where he took over the command from Admiral John Aquilino. “Our world faces a complex problem set in the troubling actions of the People’s Republic of China [PRC] and its rapid buildup of forces. We must be ready to answer the PRC’s increasingly intrusive and
STATE OF THE NATION: The legislature should invite the president to deliver an address every year, the TPP said, adding that Lai should also have to answer legislators’ questions The Chinese Nationalist Party (KMT) yesterday proposed inviting president-elect William Lai (賴清德) to make a historic first state of the nation address at the legislature following his inauguration on May 20. Lai is expected to face many domestic and international challenges, and should clarify his intended policies with the public’s representatives, KMT caucus secretary-general Hung Meng-kai (洪孟楷) said when making the proposal at a meeting of the legislature’s Procedure Committee. The committee voted to add the item to the agenda for Friday, along with another similar proposal put forward by the Taiwan People’s Party (TPP). The invitation is in line with Article 15-2