By William Fellows
Compaq Computer Corp did just about what it expected in the first quarter: net income was $281m, up from $16m last time, on revenue up 65% at $9.41bn over $5.68bn. Earnings per share were $0.16. Original expectations had been for Compaq to earn $0.30 a share. Last month that was pared back to $0.15, or some $255m after earnings warnings. The company has not yet addressed how it will, in the words of its chairman and acting CEO Ben Rosen, acquire the organizational ability to move at internet speed, or how it can shake off its lingering PC company image. Rosen has stressed that it is a question of execution rather than strategy. He said the first quarter results were unacceptable but declined to examine the financial outlook.
Compaq remains number one in commercial PCs even though first quarter revenue for that sector was below expectations because of falling prices and lower demand. Consumer PC business grew 30% in and out of the channel. A good deal of the blame for the quarter appears to rest with enterprise servers which grew year-over- year, although sales at the back-end of the quarter were off and margins were less than expected. Storage sales and profitability were as expected on margins in the 30s. Unit ships of industry standard (Intel) servers were up 35%. Overall gross margins were 24.7%, up 0.7% over last time but down sequentially. Out of the channel unit sales increased 18% across the board: 7% in the US, 33% in Europe, 41% in Japan, 38% in Latin America, while China declined 17%. Inventory turns are just under four weeks. Overall product sales for the quarter were $7.8bn, up $2.2bn or 40% compared with last time. Factoring in DEC’s contribution services revenue was up 7% at $1.6bn.
Compaq has 69,200 employees, down 1,400 from last quarter. It says 85% of the 17,000 reduction in headcount it plans have been carried out. It is amortizing goodwill for shopping.com and other acquisitions at $71m a quarter. It ended the quarter with $3.6bn cash.
