As its rivals stumble, Compaq gains profits Earnings tripled in second quarter

July 22, 1993|By New York Times News Service

Compaq Computer Corp. proved yesterday that it is the personal-computer maker faring best in the industry price war, reporting that its profits tripled in the second quarter.

The surge in Compaq's earnings comes as other leading personal-computer makers, including Apple Computer Inc. and Dell Computer Corp., have suffered losses.

Compaq, by contrast, changed the way it did business last year, cutting costs and overhauling its marketing, manufacturing and product strategies. Its second-quarter results underscored the success of its turnaround. Earnings tripled, to $102 million, and sales doubled, to $1.63 billion, compared with the same quarter a year earlier.

"Compaq is the best-performing personal-computer company now," said David Wu, an analyst for S.G. Warburg & Co. "They're doing everything right."

In an interview, Eckhard Pfeiffer, Compaq's chief executive, said the company's sales had increased strongly in all major sales regions. In the United States, revenue rose 127 percent, and sales in Asia, Latin America and Japan jumped 159 percent.

Even in Europe, where sales have eased for many computer makers, Mr. Pfeiffer said Compaq had managed to increase sales 58 percent in dollar terms and 70 percent in local currencies.

"We're gaining market share worldwide," Mr. Pfeiffer said.

International Data Corp. estimates that Compaq's share of the personal-computer market of 33.6 million machines worldwide would rise to 6.47 percent this year, from 5.26 percent of 29.6 million machines in 1992. The Houston-based company is the No. 3 maker of PCs,behind IBM and Apple.

Compaq's reported earnings were higher than most analysts had expected, prompting the company's shares to rise $3.375 yesterday, to $49 a share, in trading on the New York Stock Exchange.

The strong results led several analysts to increase their 1993 earnings forecasts for Compaq. "This bodes well for Compaq from here on," said John C. Maxwell III, a principal at Soundview Financial Group. He raised his earnings forecast for the year to $5 a share, from $4.73.

Analysts were particularly encouraged because Compaq's gross profit margins rose slightly during the second quarter, to 24.1 percent, up 1.1 percent from the first quarter of 1993.

Like other PC makers, Compaq has seen its margins fall during an industry price war that began more than a year ago. The winners, like Compaq, have been able to increase profits in the face of declining prices and margins because they have sold so many more machines.

Yet the leveling and slight improvement in Compaq's margins means that the company's costs are firmly under control, said Michael Kwatinetz of Paine Webber Inc., even as the company has cut prices, increased advertising spending and added a direct-marketing operation.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.