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Compaq posts losses, cuts up to 8000 jobs

Compaq posts losses, cuts up to 8000 jobs

Compaq last week announced a second-quarter loss of $US184 million, or 10 cents per share, as a result of PC pricing pressures, inadequate revenue growth and a restructuring charge of $700 million to $900 million, which includes a workforce reduction of 6000 to 8000 employees.

Worldwide sales for the quarter, which ended on June 30, were $9.4 billion and total revenues for the quarter grew by 17 per cent, the company said in a statement.

A year ago, the company reported earnings of $32 million, or 2 cents per share, for the second quarter.

A survey of 30 analysts polled by First Call estimated Compaq would report a loss of 11 cents per share for the latest quarter.

Michael Capellas, Compaq's newly installed president and chief executive officer, said the job cuts were necessary to get the company back on track financially.

"We are aggressively taking the appropriate actions to restore the company's growth and financial performance," Capellas said in the statement. "The realignment of the company is fully underway, our management team is basically in place and we already offer the powerful solutions and range of products customers need to maximise Internet benefits through Compaq's NonStop eBusiness capabilities."

The realignment will help the company institute a strategy that includes timely product delivery and cost reduction, he said.

The chief factors driving the losses were inadequate revenue growth, a decline in gross margins, and increasing operating expenses, Capellas added.

Intense price competition in the commercial PC market, an increase in warranty expenses associated with several PC products no longer shipping, costs from discontinued programs, and penalties related to some long-term purchasing contracts resulted in a drop in the total gross margin from 24.7 per cent in the first quarter to 20.5 per cent in the second quarter, the company said.

Operating expenses increased to $2.2 billion in the second quarter over $1.9 billion in the first quarter. Factors contributing to the rising expenses included completion of year 2000 safeguards, increased spending on promotional events and advertising, costs associated with discontinued business ventures, AltaVista goodwill amortisation, and incremental accounts receivable allowances.


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