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Jan 25, 2000 - 07:07 PM

Compaq's Fourth-Quarter Profit Drops 56 Percent

By Mark Babineck - Associated Press Writer

HOUSTON (AP) - Compaq Computer Corp. reported Tuesday a 56 percent tumble in fourth-quarter profits on a 4 percent drop in revenue, dragged down by lower sales of business computers as the company struggled to maintain its global leadership in PCs.

Compaq managed to beat Wall Street expectations, but the results were bolstered by a gain of $50 million in its own investment portfolio, separate from growth from its computer business.

Compaq said it earned $332 million, or 19 cents a share, in the final quarter of 1999, off from $758 million, or 43 cents a share, in the year-ago quarter. Sales dipped to $10.48 billion from $10.86 billion.

Analysts surveyed by First Call/Thomson Financial had expected Compaq to earn 16 cents per share.

Compaq released its results after regular trading Tuesday on the New York Stock Exchange, where the company's shares were at $32 a share, down $1. In after-hours trading, Compaq shares were trading lower at $31.50 a share.

While Compaq leads in worldwide sales of PCs, rival Dell Computer Corp. overtook Compaq as the No. 1 U.S. PC company in the fourth quarter, underscoring the company's uphill battle against stiff competition, price wars and mismanagement. But Compaq president and chief executive officer Michael Capellas said the company is recovering and pointed to stronger sales of consumer PCs.

"During the second half of this year we took aggressive action to return Compaq to profitable growth, and fourth quarter results reflect our initial success where it matters most - in the marketplace," said Capellas, who succeeded ousted former chief executive Eckhard Pfeiffer last summer.

Capellas pointed to a record $2 billion in fourth-quarter revenue in the company's consumer computing group, up 24 percent from the year-ago period. Revenue from Internet access and traffic bolstered those results, the company said.

Despite some encouraging signs, U.S. Bancorp Piper Jaffray analyst Ashok Kumar said Dell already has won the personal computing war.

"I think their time has come and gone," Kumar said, saying one of the only attractive things about Compaq is its relatively low stock price. "It's a value play more than anything else."

Kevin Knox, of the Gartner Group, countered that Compaq can continue to be a force in the personal computer business despite Dell's strength.

"Compaq still is the No. 1 PC manufacturer in the world. A lot of people lose sight of that," Knox said. "While they have lost some share, they're still a solid supplier of PC hardware and I don't see that changing."

For all of last year, Compaq earned $569 million, or 34 cents a share, compared with a loss of $2.74 billion, or $1.71 a share, in 1998. The 1998 figure reflects costs associated with the acquisition of Digital Equipment Corp.

Revenue totaled $38.53 billion, up 19 percent from $31.17 billion in 1998.

-- snooze button (alarmclock_2000@yahoo.com), January 26, 2000

Answers

Oh lookee... A company whose shares actually went down instead of up from bad news. :)

-- Gia (laureltree7@hotmail.com), January 26, 2000.

The drops in earnings by many of the big companies (which are not Y2K related, AFAIK), have been largely ignored by the speculators of today's market. Instead, they listen to CNBC which says 'Hey, Compaq beat analyst estimates!!! Oh, and BTW, earnings got cut in half.' At least Intel was crafty enough to include an extraordinary windfall in their quarter's earnings so theirs wouldn't go down, but sooner or later people will catch on (hopefully).

-- Just (anotherbuckeye@columbus.oh.org.us), January 26, 2000.

Gateway, then Compaq, now Dell:

Dell Warns of Y2K-Related Earnings Shortfall

1/26/00 5:20 PM ET

This story has been updated from 5:20 p.m. EST

Computer giant Dell (DELL:Nasdaq - news) warned investors Wednesday that its earnings would be lower than Wall Street's expectations because of semiconductor supply problems and a slower-than-expected rebound in sales after concerns about year 2000 problems dissipated.

The company says it is now expecting fiscal fourth-quarter net earnings of $430 million, or 16 cents a diluted share. Analysts surveyed by First Call/Thomson Financial had been anticipating earnings of 21 cents a share.

Dell's fourth fiscal quarter ends on Friday. The company is scheduled to report earnings on Feb. 10.

Dell projected the earnings shortfall after the stock market closed. In after-hours trading, Dell's stock fell 2 1/2, or 6.2%, to 37 7/8; it had ended regular trading at 4 p.m. EST down 1 3/4, or 4.2%, at 40 3/8.

Dell said its revenue was rising two to three times faster than the rate of worldwide computer demand, but that failed to overcome the semiconductor supply problems and Y2K concerns.

"An inconsistent flow of semiconductor components and a slower-than-expected rebound in sales to corporate and institutional customers related to the Y2K rollover were the primary reasons for the shortfall," the company said.

The company expects that revenue for the quarter will be about $6.7 billion, a 30% increase from the year-earlier period.

Dell said that the revised outlook was in part a result of an "uneven and constrained supply of semiconductor components," accounting for about $300 million in lost sales for newly introduced consumer products.

The company, which is based in Round Rock, Texas, also said that a sluggish rebound in demand for its products after Jan. 1 reduced expected revenue by about $500 million.

Dell's shortfall echoes that of competitor Gateway (GTW:NYSE - news), which told analysts early in January that its earnings would come in short of expectations. Gateway attributed its sales weakness to component shortages and customers postponing orders because of possible year 2000 problems.

-- DeeEmBee (macbeth1@pacbell.net), January 26, 2000.