It is now clear that the perceived slowdown in personal computer sales seen in the first quarter was a complete myth: sales were simply draining away from other vendors to Compaq Computer Corp. Not quite, but with the Houston company reporting turnover up a colossal 42%, to $4,200m, it begins to look that way. It is in reality likely that a significant proportion of the growth came from the company’s fast-growing server business, but Compaq’s numbers insistently pose the question why inherently weak companies like Digital Equipment Corp and even IBM Corp persist in the personal computer business at all, rather than buying in for resale as many as they need from one of the best of the second line specialists such as AST Research Inc. For the current quarter, Compaq is targeting sales at about the same levels as the first quarter and earnings that meet or exceed those of the same period last year – in the most recent quarter, profits were up only 8%. Compaq said its outlook is dependent on continued strong customer demand and availability of new products late in the quarter. We expect the combination of changes in product mix, reductions in the costs of materials, higher margins on new products and ongoing expense controls to enable us to achieve second quarter earnings that will meet or exceed that same period a year ago, said chief executive Eckhard Pfeiffer. The company’s shares soared $4.375 to $48.25 on what were better-than-expected first quarter figures – analysts had been looking for 81 cents a share and got 85 cents – and they said its outlook for the second half is bullish – and how! Laura Conigliaro of Prudential Securities raised her rating on the personal computer king to buy from hold.
