Compaq logs 3Q loss, warns
Computer maker expects more losses in current quarter as weak demand lingers.
NEW YORK (CNNmoney) - Compaq Computer Corp. Tuesday reported a third-quarter loss that was in line with its reduced estimate on sales that fell sharply from the same quarter a year earlier.|
At the same time, the world's No. 2 PC maker said it expects sales to stagnate in the fourth quarter, causing another operating loss.
After the close of trading, Compaq said it lost $120 million, or 7 cents per share, during the quarter ended Sept. 30. That excludes one-time charges and compares with a profit of 30 cents per share during the same quarter a year earlier.
Including restructuring and other one-time charges, Compaq's net loss for the quarter was $499 million, or 29 cents per share, compared with a net profit of $557 million, or 32 cents per share, a year ago.
At $7.5 billion, Compaq's third-quarter revenue fell 33 percent from $11.2 billion during the year-ago quarter.
On Oct. 1, Compaq (CPQ: Research, Estimates) said it expected to post a third-quarter operating loss ranging between 5 cents and 7 cents per share on revenue between $7.4 and $7.5 billion. Prior to that, analysts polled by First Call generally had expected Compaq to report a profit of 5 cents per share on roughly $8.2 billion in sales.
"It goes without saying that the third quarter was one of the most challenging quarters ever for Compaq and for our industry," Michael Capellas, Compaq's chairman and CEO, told analysts during a teleconference Tuesday evening.
He blamed increased pricing pressure amid a weakening global economy and continued slack demand for computer hardware, logistical and transportation disruptions caused by the Sept. 11 terrorist attacks on the United States, and "fundamental business model issues," specific to Compaq.
When Compaq warned of the quarterly shortfall on Oct. 1, Cappellas said a culmination of events all of which happened in the final weeks had created a "the perfect storm" which sank the company's quarter.
Because all of these events happened in September, when the company typically close as much as 50 percent of the quarter's total business, Compaq's results were disproportionately affected by these events, which included a typhoon which disrupted its operations in Taiwan, as well as their merger announcement with Hewlett-Packard, which resulted in a temporary decline in productivity.
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Still, Cappellas said the company's results will continue to come under pressure in the fourth quarter. He said the company is aiming for revenue
in the range of $7.6 billion-to-$7.8 billion and a loss of about 3 cents per share.
Analysts recently had pegged a fourth-quarter revenue estimate of $8.2 billion and expected the company to break even, according to a survey conducted by earnings tracker First Call.
During the quarter, revenue from Compaq's PC business generated $3.3 billion in sales, down 42 percent from a year ago. The unit posted a loss of $248 million. The company said it continued to take steps to streamline that business, reducing inventory across the supply chain by more than $400 million during the quarter, increasing inventory turns and focusing on more profitable products.
Part of the loss in Compaq's PC unit can be attributed to Dell Computer, whose gains in market share became even greater in the third quarter as a result of more aggressive pricing and a defection of Compaq and HP customers who are leery of the merger.
Earlier this week, market research firm Gartner Dataquest said that Compaq's market share slipped to 10.4 percent in the third quarter from 13.4 percent in the year-ago quarter. Dell, meanwhile, saw its share rise to 13.8 percent from 11 percent a year earlier.
Some investors also have been skeptical of the $25 billion deal, including Matrix Assets Advisors, a major shareholder of both companies. It sent a letter to each of the companies last week urging them to reconsider such a combination.
Compaq's server and storage-systems business in the third quarter had revenue of $2.4 billion, down 37.6 percent from a year ago, and logged a loss of $104 million. The company blamed the shortfall there on weakness in the telecommunications and financial services markets, aggressive pricing - particularly for low-end servers - as well as reductions in inventory.
Meanwhile, Compaq's services business revenue was $1.9 billion, up 2 percent from a year ago. The services business logged an operating profit of $284 million or 15 percent of revenue.
Compaq said its services business, which the company has identified as a key area of focus over the longer term, now comprises 25 percent of total revenue, up from 23 percent in the second quarter.
"This performance in a tough market reinforces the importance of our shift to a more services-led strategy and our increased emphasis on recurring revenue and profit streams," Cappellas said.