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Compaq to miss 4Q forecast
December 12, 2000: 6:17 p.m. ET

Weak consumer and sales expected to weigh on quarterly profit
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NEW YORK (CNNfn) - Compaq Computer Corp., the world's largest PC supplier, has added its name to the list of technology companies which will not meet fourth-quarter sales and profit targets.

After the close of trading Tuesday, Compaq said it now expects its fourth-quarter revenue to be between $11.2 billion and $11.4 billion. That's between 8 percent and 10 percent less that the $12.4 billion executives had forecast in October.

Fourth-quarter operating earnings will be between 28 cents and 30 cents per share, the company said. The most recent consensus estimate of analysts polled by earnings tracker First Call was for Compaq to earn 36 cents per share during the quarter.

Executives at Compaq in Houston blamed the shortfall on softness in the consumer, small business and dot-com markets.

graphicIn a teleconference Tuesday evening, Michael Capellas, Compaq's chairman and chief executive, said the weakness, which the company began to recognize shortly after the Thanksgiving holiday, was centered in the North American market.

"It's hardly news to anyone now that the North American market is tough," Capellas said. "Business activity in the rest of the world remains on track."

Looking further ahead, Capellas said Compaq now expects revenue growth in 2001 to be 10 percent, down from the company's previous forecast of 12-14 percent revenue growth in 2001. The company expects to post 25 percent growth in earnings per share in 2001.

"Although this is lower than our previous guidance, it still reflects strong year-over-year improvement," Capellas said. "I remain very confident in the long-term strength of the information technology market and in Compaq's ability to be one of the clear leaders."

Compaq (CPQ: Research, Estimates) shares rose 53 cents to $20.77 ahead of the earnings warning. They slipped 76 cents to $20.01 in after-hours trade.

Given the general weakness that has overtaken the PC market, Capellas said pricing, especially in the market for corporate desktop PCs, has become more aggressive.

Capellas said he expects that pricing pressure to carry over into the first half of 2001, which will likely yield weaker financial results than the second half. "We do expect pricing to be tough going into the first half," he said.

graphicCompaq also has taken actions required to adjust to the changing market conditions, including making sure its customer inventories are at levels of four weeks for commercial products and just under seven weeks for consumer products, Capellas said.

With its warning, Compaq added its name to a growing list of PC-related companies to warn of a weaker-than-expected fourth quarter.

Apple Computer (AAPL: Research, Estimates), Gateway (GTW: Research, Estimates), Hewlett-Packard (HWP: Research, Estimates), Gateway (GTW: Research, Estimates), Intel (INTC: Research, Estimates) and Advanced Micro Devices (AMD: Research, Estimates) are among the others who have said their results will come in below previous expectations.

Most of them pointed to weakness in the consumer PC segment and a buildup of inventory in the distribution channel as the main reasons for the shortfalls.

Compaq also said Tuesday that it will record a non-operating, non-cash charge of more than $1 billion in the fourth-quarter related to the decline in value of some of its investments, principally Internet holding company CMGI (CMGI: Research, Estimates) and its related assets. graphic


Compaq beats estimate - Oct. 24, 2000