Compaq PCs drag financial chain

Compaq PCs drag financial chain

Compaq posted earnings of $US140 million for its third fiscal quarter last week in a result that beat Wall Street expectations but signals tough times ahead for its PC business.

In Australia, the company pitched the results as a win for its service offerings, posting a 36 per cent increase in revenues for the third quarter.

Compaq Australia's managing director, Ian Penman, explained the company will continue to seek PC sales from second-time, educated buyers.

`It wasn't the same stellar performance [in PCs] as we experienced in the services area,' he said.

Compaq cited several factors for the worldwide decline in its commercial PC business, including reductions in channel inventory, aggressive pricing pressure, and the Taiwan earthquake.

The company is following a rigid cost-cutting agenda that saw global operating expenses decreased from $2.198 billion in the second quarter of 1999 to $1.974 billion on an operational basis in the third quarter, a $224 million, or 10 per cent, improvement.

However, Compaq took substantial losses on its commercial PC business, reporting an operating loss of $169 million for its commercial PC segment compared to an operating profit of $116 million in the third quarter of 1999.

Compaq also announced profit growth of 48 per cent and a rise of just 8 per cent in revenues for the third quarter compared with the same period last year. This was the first time the company was forced to disclose its numbers by business units.

`We intend to remain the number one PC supplier in the world, but may sacrifice market share to increase profitability,' said Michael Capellas, Compaq's newly appointed CEO. `We are moving aggressively to new business models that will make us more competitive and we're simplifying the product set and channel model.'

Capellas spent much of the time he used to address financial analysts focusing on a new product mix coming from Compaq in the future. While he admitted that the company missed the boat in selling PCs direct over the Web, he said that changes in the PC industry have only just begun.

`The most dramatic change in store is with the products themselves,' Capellas said. `There is no doubt in my mind that what we know of as a PC will change. Simpler products and new form factors, and the way we distribute those products will change as well.'

Meanwhile, Penman said services will continue to remain an important focus of the company in Australia.

Responding to questions about ongoing retail concerns and the com-pany's strategy, Penman explained Compaq is simply moving to meet customer demand.

`There is no doubt some customers want a direct relationship with Compaq. We don't want to exclude from customers the ability to decide who they want to deal with,' he said.

`This is a customer-driven strategy, not a Compaq-driven strategy,' Penman said of the Compaq Connect stores.

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