Compaq expected to cut jobs at Digital $9.55 billion acquisition may mean grim news for 27% of work force

May 07, 1998|By BLOOMBERG NEWS

HOUSTON -- Compaq Computer Corp. will cut about 15,000 jobs at Digital Equipment Corp., or 27 percent of the work force, after its planned $9.55 billion acquisition of the computer maker, sources familiar with the plans said yesterday.

Compaq will take a restructuring charge of $1.5 billion to $2 billion, which includes the costs of firing the workers, after completing the purchase, according to filings with the Securities and Exchange Commission. Digital shareholders are expected to vote on the acquisition June 11.

Compaq faces a daunting task in absorbing the remaining 39,000 Digital employees and making sure that sales don't flounder, costs are reduced and customers don't flee while the companies are working on the combination. Compaq, the No. 1 PC maker also faces inventory problems of its own that have forced it to slash prices and sacrifice profit.

"The bad news is this is a massive integration problem," said David Pogran, director of research at Parnassus Fund, which owns 450,000 shares of Compaq. "The good news is you've got one of the best managements in America doing it."

Compaq rose 69 cents to $31.25 in trading of 29.7 million, making it the most active U.S. stock. Digital rose 69 cents to $58.69.

Compaq has been grappling with its own problems of excess inventory at dealers and distributors. The company has slashed prices, offered incentives and sacrificed profit to lure buyers. Compaq expects inventory to be down to between two to four weeks by the end of June and said it expects break-even results in that quarter.

The job cuts at Digital are the latest as failure to gauge the industry shift to personal computers and to market its products successfully led to a series of losses and massive firings. Digital's work force peaked at 125,000 in the late 1980s.

Digital spokesman Dan Kaferle declined to comment on the job cuts, as did Compaq spokesman Jim Finlaw. Kaferle did say that several of Digital's business units will remain in Massachusetts, including its services business.

Compaq is buying Digital to gain better access to corporate customers who want one-stop shopping for computer hardware and services. Digital's services business, which consults with corporations and helps choose systems, install them and do maintenance and training, is well regarded with customers including MCI Communications Corp.

Digital's sales totaled $13 billion in the fiscal year ended June 1997, or about $238,000 for each employee at the time. Compaq had $24.6 billion in revenue last year, or almost $755,000 for each of its 32,500 employees.

Pub Date: 5/07/98

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.