Compaq cutting prices, jobs after weak Q1 results

Compaq cutting prices, jobs after weak Q1 results

Compaq on Monday disclosed increased workforce cutback plans and said it has started taking "aggressive pricing actions" on its low-end servers and other products in the wake of weak first-quarter financial results.

The computer maker reported a 74 per cent drop in net income and a 3 per cent revenue decline on a year-to-year basis for the first quarter. Those results, which included a $US249 million restructuring charge, were in line with a reduced-expectations warning that Compaq issued last month.

Michael Capellas, Compaq's chairman and CEO, said during a conference call this afternoon that the company is becoming "much more aggressive with pricing reductions" in an attempt to protect its market share in core markets such as the server business. "We've really stepped this up in the past few weeks," Capellas said.

The price cuts especially apply to servers based on Intel's microprocessors, Capellas said, noting that Compaq is feeling competitive pressure at the low end of that product line. But the company is also lowering prices on its enterprise storage products and in other areas, he added.

On the workforce side, Jeff Clarke, who took over as Compaq's chief financial officer last month, said the number of jobs that will be eliminated through a combination of layoffs and attrition has now been increased to 7,000. That's up from the 5,000 positions that Compaq had targeted in March and would cut the number of workers on its payroll by 10 per cent.

Compaq expects to lay off about 4,500 employees as part of the cutback, Clarke said. The reductions will be made across the board, but he said they should have a "minimal impact" on the company's engineering and sales staffs. Compaq expects to lower its annual expenses by more than $US500 million through the cuts, Clarke added.

In the first quarter, Compaq had a net profit of $US78 million, down from $US296 million in the same period a year ago. Total revenue amounted to $US9.2 billion, off from the year-earlier level of $US9.51 billion. Capellas said the shortfall in business was concentrated in the US, as revenue from overseas market grew 17 per cent during the quarter.

"Needless to say, this remains a very challenging market," Capellas said. Most corporate users aren't canceling IT projects altogether, he added, "but they are looking for more creative ways to fund them." That, in turn, is contributing to the more aggressive pricing, Capellas said.

Compaq's second-quarter showing is expected to be similar to the results for the first quarter, Capellas indicated. But he said the workforce cutbacks and a planned reduction in product inventories should position the company to "rebound strongly" from a profit standpoint during the second half of the year "regardless of market conditions."Photograph: Compaq CEO Michael Capellas

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