Compaq wields cost axe

Capellas warns of tough Q2

Compaq profits dropped in the first quarter, and it warns of a tough Q2.

The number two PC seller reported net income of $200 million, or 12 cents per share, for the three months ended March 31, 2001.

This excluded a restructuring charge of $249 million and $75 million in net investment income, and compared to $296 million, or 17 cents per share, for Q1 last year. Including the charge, profits were $78 million, or five cents per share.

Sales slipped three per cent to $9.2 billion. Non-US revenue grew 17 per cent, which offset weakness in the US, particularly in consumer PCs, according to Compaq CEO Michael Capellas.

Regarding the future, Capellas said: "While we believe the second quarter will continue to be challenging, it also provides an opportunity to make significant improvements in our business model.

"We are aggressively focusing on five key improvement initiatives including additional reductions in our structural costs, permanent inventory reductions, aggressive pricing, increased investments in innovation and broadening our global services.

"We are confident that these actions will strongly position us for improved results in the second half of this year and beyond."

Last month Compaq said it would lay off seven per cent of its workforce, around 5,000 workers, while warning that sales would not hit forecasts. At the time it cut its revenue prediction from $9.6 billion to $9 billion.

Compaq's falling profits and staff cuts reflect the general state of the IT industry - belt tightening and staff cuts. Hewlett-Packard and Gateway each recently announced plans to can 3,000 staff.

Meanwhile, Dell has finally overtaken Compaq as the world's top selling PC manufacturer. According to figures released by IDC last week, Dell sold 4.1 million units in 2000, netting it 13 per cent of the market and forcing Compaq into second place. Big Q sold 3.8 million PCs, giving it 12 per cent of the worldwide PC market share. ®

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