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Compaq warns, cuts jobs
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March 15, 2001: 6:26 p.m. ET
PC maker to cut 5,000 jobs, lower 1Q guidance, take $150M charge
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NEW YORK (CNNfn) - Compaq Computer Corp. lowered its first-quarter earnings guidance Thursday and plans to cut about 5,000 positions, or 7 percent of its global work force amid a softening U.S. economy.
Houston-based Compaq (CPQ: Research, Estimates) expects to earn 12 cents to 14 cents in first quarter, nearly flat with the same quarter last year's results. Earnings tracker First Call had expected 18 cents per share for the quarter.
Revenue will also come in 4 percent below last year's results, between $9 billion and $9.2 billion. Compaq Chairman and CEO Michael Capellas said Thursday he expects gross margins to continue to deteriorate.
Compaq did not give further earnings guidance for the year.
 "We see continued weakness in the U.S. economy, and resultant pricing pressures," said Capellas. "Despite the slowdown, we are pleased with market acceptance of our enterprise products driven by our ability to offer end-to-end solutions and services."
Shares of Compaq gained 15 cents to close at $18.50 Thursday on the New York Stock Exchange and were unchanged in after-hours trade.
The lowered guidance is somewhat an about-face for the computer maker. In January, Compaq said it expected difficult market conditions in the first half of the year but remained comfortable with the Street's earnings-per-share growth estimate of between 20 percent and 25 percent for 2001.
Compaq also announced Thursday that it plans to take a first-quarter restructuring charge of up to $150 million and will realize a one-time gain of about $120 million related to the sale of its investment in the Road Runner joint venture.
Compaq plans to take a number of management actions that it believes will cut order cycle time, reduce channel inventory and improve account and order management. The 5,000 job cuts will come from the merger of its commercial and consumer personal computer units into a single business group.
The changes will result in annualized savings of $500 million to $600 million.
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The world's No. 1 PC maker also announced several management changes, including naming Jeff Clarke chief financial officer.
Lehman Brothers analyst Dan Niles told the N.E.W. Show that Compaq's latest warning is not as severe as its counterparts in the PC industry. "It wasn't as bad as it could have been given the current environment," Niles said. "Compaq started the year with much more conservative guidance than anyone else. [CEO Michael Capellas] had a better handle on this."
Nevertheless, Capellas cautioned that some of the weakness that has been seen in Compaq's U.S. markets could spread overseas and that the company can't help but see some adverse effects of a global spending slowdown. 
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