In what looks like a flight to quality in the personal computer business – with Escom AG going bust, Ing C Olivetti & Co SpA on the ropes and Packard Bell Electronics Inc looking less than healthy, it is clear that by no means everyone is doing well in personal computers – Compaq Computer Corp turned in stunningly good figures yesterday, with third quarter profits up nearly 43% on sales up 25%. And that sales figure makes it certain that Compaq will leapfrog Digital Equipment Corp into third place in the ranks of US computer manufacturers after IBM Corp and Hewlett-Packard Co this year. Dreadful figures are again expected from DEC this quarter, with personal computers leading the way down, and, rubbing it in, Compaq says it continues to expect a strong second half and is confident its current business model will enable it to gain market share and improve profitability. Once again, the analysts were wrong-footed, and third quarter earnings of $1.25 a share were well above the Street consensus estimate of $1.07. Gross margins grew to 23.8% of revenue and the company explained its performance, in face of very dull expectations for the sector as a whole by saying that its options business, which includes monitors, hard drives, keyboards, CD changers and other accessories, remains one of its most profitable and grew significantly in the third quarter, and that Compaq said it now has the strongest line-up of products and strategic partnerships in its history, and at the end of October it plans to launch workstations that run Windows NT, priced far more cheaply than rival workstations, which will be aimed at engineering and financial users. Compaq said its inventories in the third quarter fell by $855m to $1.4bn as it continued to focus on asset management – and inventory turns increased to 9.0 times in the third quarter from 5.1 times a year earlier. The company says all these operational improvements lifted its cash balances to $3.2bn, which is up 185% compared with a year ago.
