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October 14, 1998


By CBR Staff Writer

Compaq Computer Corp reported third-quarter net income down 77.8% at $115m in its first full quarter of operations following the acquisition of Digital Equipment Corp. Earnings per share amounted to $0.07, a penny ahead of Wall Street estimates. Revenues for the quarter grew 35.8% to $8.79bn. Nine-month net loss was $3.5bn on revenue up 17.7% at $20.3bn, compared to net income of $1.19bn, or $0.76 per share, last year. The nine-month results included $3.23bn in acquisition charges and $393m in restructuring and asset impairment charges. The company says it made decisive implementation steps during the quarter to begin realizing synergies from the DEC buy and insists that, to date, the integration activities are on track. Offering proof of that, Compaq said gross margins improved sequentially to 24.9% and that the acquired services business had its strongest quarter in terms of year-over-year revenue growth in over five years. Cash at the end of the quarter stood at $4.4bn after buying back approximately $180m in stock and satisfying $100m in restructuring obligations. Sales out of the distribution channels grew 38% year-over-year, which Compaq reckons is more than two times the market and sees continuing through next quarter. The company says its CTO (configure-to-order) business is still relatively small but that it is the most efficient way to get products to consumers according to chief executive Eckhard Pfeiffer. By mid-1999 inventory turns should be down to 5 days with the CTO model having fully kicked in. It’s still a prototype model at the moment, Pfeiffer said, but for now, shipments into the channel almost match shipments out. The company will continue the DEC integration work during the fourth quarter and continues to believe earnings for the combined companies should be accretive as early as then. Going forward on the product front, Compaq says it will use the Alpha chip in machines from workstations all the way up to the biggest Tandem servers and that the next-generation Tandem servers will be Alpha-based.

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