By William Fellows

Commercial PCs continue to be Compaq Computer Corp’s bugbear. In the third quarter revenue was off 12% year over year at $2.7bn, and although the operating loss was down sequentially to $169m from $225m, that compares to an operating profit of $116m in the same period last year. The group accounts for 30% of the company’s revenue.

It attributed part of the blame on lower channel inventory ($200m) and the Taiwan earthquake ($40m). CEO Michael Capellas says the internet, distribution and core product technologies are the problems it still has to address. He said there is a new e- business product set in the wings although a complementary ad campaign due this quarter has already had its critics on Wall Street (CI No 3,724). The fourth quarter will be all about messages, positioning, web servers and services said Capellas.

Since July the company has organized around three new divisions. The enterprise solutions and services group – by far the largest revenue stream at 54% of total sales, reported revenue of $4.9bn, flat year over year. Product revenue grew 14% to $3.3bn. Although storage (up 12% year over year) industry standard servers (27%) are growth areas Compaq warned that high-end server sales which grew 12% this quarter, will slow in the fourth quarter due to Y2K. Services revenue grew 7% to $1.6bn. The consumer group came out swinging with $1.5bn revenue, up 15%. It’s 16% of total revenue.

Compaq said its share of the PC market grew or stayed the same in regions outside the US where it lost the number one position to Dell Computer last quarter. It said its share of the worldwide market fell 0.6% to 13.8% in the quarter. North America and European revenue was up just 2% – they account for 80% of revenue – while other regions showed strong growth.

Compaq reported net income up 21% at $140m including a restructuring charge of $868m and a gain of $1.56bn for the sale of AltaVista over $115m last time on revenue that grew 5% to $9.2bn over $8.7bn. Earnings per share were $0.08 or $0.07 minus charges, in line with analysts’ estimates. For the nine months net income was $237m compared with a loss of $3.5bn last time on revenue which rose 38% to $28.04bn from $20.31bn.