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Compaq sees 3Q shortfall
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October 1, 2001: 6:07 p.m. ET
Computer maker expects lower sales, and to post a loss for the quarter
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NEW YORK (CNNfn) - Compaq Computer Corp. said Monday it expects to post a third-quarter loss, on much lower-than-expected revenue, because of disruptions to its business caused by the Sept. 11 terrorist attacks and several other extraordinary circumstances.
For the quarter ended Sept. 30, Compaq (CPQ: Research, Estimates) said it now expects to report a loss ranging between 5 cents and 7 cents per share on revenue between $7.4 and $7.5 billion.
The company also said it would take a charge of $500 million related to its investment in Internet holding company CMGI Inc.
Prior to Monday's warning, analysts generally had expected Compaq to report a profit of 5 cents per share on roughly $8.2 billion in sales, according to a survey conducted by earnings tracker First Call.
Compaq (CPQ: up $0.02 to $8.33, Research, Estimates), which last month announced plans to merge with competitor Hewlett-Packard Co., blamed the shortfall on "the increased speed of economic deterioration exacerbated by the tragedy of September 11 and other related supply chain and logistics events."
The company said the terrorist attacks on targets in New York City and Washington disproportionately affected the quarter, resulting in lower market demand, and also slowing transportation and disrupting logistics.
At the same time, executives said their operations in Taiwan were disrupted by a typhoon, and their merger announcement with HP had resulted in a temporary decline in productivity.
"The only way to describe this is almost the perfect storm," Michael Capellas, Compaq's chairman and CEO, told analysts during a conference call Monday evening.
Exacerbating the shortfall was the fact that all the events they blamed it on took place in the last month of the quarter, which executives said is when they typically close as much as 50 percent of the quarter's total business.
Jeff Clarke, Compaq's chief financial officer, said the company ended the quarter with a backlog of 300,000 units which it wanted to ship but could not, accounting for "a couple hundred million" worth of the revenue shortfall.
Capellas said Compaq effectively lost a week's worth of orders in the wake of the Sept. 11 terrorist attacks, which claimed thousands of lives, destroyed New York City's World Trade Center, and damaged the Pentagon outside of Washington, D.C.
Compaq also has been moving toward a "just-in-time" business model, taking delivery of the components it needs to build its products as close to the time it needs them as possible. Capellas said roughly 75 percent of those components are delivered by air.
"They have been moving toward just-in-time style of production, so I'm sure that led to the shortfall," said Eric Rothdeutsch, an analyst at Robertson Stephens.
Compaq executives would not provide a forecast for the fourth quarter. The company is expected to report its third-quarter results on Oct. 24. 
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