Compaq Computer Corp posted first-quarter net income of just $16m, or $0.01 per share, down 96% from the year ago quarter’s $414m. The results were in line with analysts’ revised expectations after the company issued a profit warning more than a month ago (CI No 3,363). Before the warning, analysts surveyed by First Call had been expecting $0.35 per share – a 29.6% increase from last year’s $0.27. Revenue came in slightly higher than expected, up 7.9% at $5.69bn – when last month’s warning projected revenues essentially flat year-over-year. As the Houston-based PC giant had already said, slow sales from its North American commercial channels and increased pricing pressures were behind the shortfall. As a result, it cut prices further to accelerate sales and clean out the channel as it moves toward its Optimized Distribution Model, announced last July (CI No 3,201). The company says that plan is working and the channel is clearing. Inventory turns were 15 during the quarter, an increase of four from last year. Inventory decreased $314m from the fourth quarter which, along with improvements in receivables and payables, helped Compaq’s cash balance grow 43% year-over- year to $7.1bn. However, the warning is out that the second quarter will be a period of adjustment necessary to put the company’s core business back on track. During this transitional quarter, Compaq says it will launch an almost completely new product line, from handhelds to servers. It will also continue working with the SEC and the FTC to get the Digital Equipment Corp acquisition approved. It is still expected to close during the quarter. Analysts are expecting earnings of $0.09 per share next time. Compaq shares reacted to the news by climbing $0.6875 to $26.75.
