Compaq posts a loss, plans to cut more jobs

No. 1 maker of PCs hurt by falling prices, digestion of Digital deal

July 29, 1999|By BLOOMBERG NEWS

HOUSTON -- Compaq Computer Corp., the world's No. 1 personal computer maker, said yesterday that it had a second-quarter loss in line with analysts' forecasts and announced that it will cut as many as 8,000 more jobs, or 12 percent of its work force, to reduce costs.

The loss was $184 million, or 10 cents a share. A year earlier, Compaq had profit from operations of $32 million, or 2 cents. Sales rose to $9.42 billion from $5.83 billion. Year-earlier results include the acquisition of Digital Equipment Corp. as of June 11, 1998.

Compaq is struggling with falling PC prices as it finishes the integration of its $9 billion Digital purchase and tries to define a strategy for using the Internet to boost growth. Compaq last week named acting Chief Operating Officer Michael Capellas as its new chief executive officer, replacing Eckhard Pfeiffer, who was forced to resign in April because of the company's disappointing performance.

"This quarter doesn't really matter," said analyst Ashok Kumar of U.S. Bancorp Piper Jaffray. "People are looking for signs of recovery, and that won't come until at least September."

Compaq said it will pare 6,000 to 8,000 workers to bring its total employment to about 59,000. Compaq still has about 2,000 jobs left to cut from an earlier restructuring plan to reduce head count by 17,000, or 20 percent.

The company said it will take a charge of as much as $900 million in the third quarter to cover costs of a planned restructuring. Details of the restructuring are expected to be unveiled next month.

"We are aggressively taking the appropriate actions to restore the company's growth and financial performance," Capellas said in a statement.

Compaq has lost half its market value since the end of January because of disappointing earnings and management turmoil. The stock traded as high as $51.25 in late January, and fell as low as $20 in mid-June. Compaq shares rose 56.25 cents to $25.9375 yesterday.

Gross margin narrowed to 20.5 percent from 24.7 percent in the first quarter.

Sales a year ago were $8.02 billion on a pro-forma basis, assuming Digital had been part of Compaq from the beginning of the year-ago quarter. On a pro-forma basis, sales rose 17 percent.

Including a $3.2 billion pretax charge related to the Digital acquisition and other charges, Compaq's year-ago loss was $3.63 billion, or $2.33 a share. There were no gains or charges in the year-earlier quarter.

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