News release

Compaq Reports First Quarter Results

Compaq Computer Corporation (NYSE: CPQ), a leading global provider of enterprise technology and solutions, today reported revenue of $9.2 billion for the first quarter ended March 31, 2001.

Net income from operations for the quarter was $200 million, or $0.12 per diluted common share. Results exclude a one-time $249 million charge for restructuring actions, net investment income of $75 million, and related tax effects. Including the special items, the company reported net income of $78 million, or $0.05 per diluted common share.

"Given the difficulties in this market environment, our first quarter performance reflects solid global execution," said Michael Capellas, chairman and chief executive officer. "Total revenue was down three percent, or up one percent in constant currency. Outside the U.S., revenue grew 17 percent, offsetting weakness in U.S. markets—most notably consumer PCs."

In the same quarter last year, Compaq reported revenue of $9.5 billion and net income of $296 million, or $0.17 per diluted common share. Adjusted for a net after-tax gain of $44 million related to Compaq's investment portfolio, earnings per diluted common share were $0.14.

Global services revenue was up 4 percent from a year ago. Compaq's enterprise business was down 2 percent from the same period last year, but saw particularly strong growth of 26 percent in enterprise storage. Outside the U.S., the company grew 17 percent year-over-year in constant currency, driven by enterprise growth of 29 percent, access growth of 15 percent and services growth of 8 percent. International sales accounted for 61 percent of the quarter's revenue. Revenue in the company's access business—which includes consumer and commercial personal computers—was down 7 percent.

"The relative strength of our enterprise products and services reflects the fact that customers are looking for partners that can provide integrated solutions and put the pieces together to add real business value beyond the box," Capellas continued.

Adjusted for currency, Europe, Middle East and Africa grew 14 percent, Japan grew 31 percent, Asia Pacific grew 29 percent, Latin America grew 17 percent and China grew 6 percent. North America revenue was down 17 percent.

First quarter results include a $249 million charge, which expands previously announced restructuring. The restructuring activities will yield an annualized savings of approximately $500 million.

Operating expense of $1.8 billion was essentially unchanged from a year ago, and was down 9 percent from the previous quarter. First quarter gross margin, as a percentage of revenue, was 22.7 percent, down slightly from a year ago. The decline was largely the result of pricing pressure in the U.S.

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