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Compaq Reports 2001 Second Quarter Results
HOUSTON, July 25, 2001
Compaq Computer Corporation (NYSE: CPQ), a leading global provider of enterprise technology and solutions, today reported net income from operations of $67 million, or $0.04 per diluted common share, for the second quarter ended June 30, 2001. Second quarter 2001 revenues totaled $8.5 billion.
"I am pleased with the company's solid execution in this challenging environment," said Michael Capellas, chairman and chief executive officer. "We delivered on our commitments to improve the company's business model and built momentum behind our services and solutions-led strategy. A good example is Compaq Global Services which grew 7 percent year over year, or 13 percent in constant currency."
"We successfully balanced the need for stringent cost controloperating expenses are at their lowest level in three yearswith continued investments in product innovation and creative go-to-market approaches, such as the recently announced Computing On Demand program," Capellas continued. "In addition, we met consensus EPS even as inventory levels were dramatically reduced across the entire supply chain. During the first half, inventory levels were reduced by nearly $1 billion, including more than $500 million of channel inventorywhile we also improved on-time delivery."
Second quarter gross margin, as a percentage of revenue, was 21.5 percent, down one point sequentially and two points on a year-over-year basis. This was due to an aggressive pricing environment and decreased volume, offset by savings from improved inventory management and revenue mix. Second quarter 2001 operating expenses were $1.7 billion, a decrease of $102 million from the first quarter of 2001 and $120 million from the same period last year.
The company's operational results exclude a restructuring charge of $493 million. Including this charge, the company reported a net loss of $279 million, or $(0.17) per diluted common share.
In the same quarter last year, Compaq reported revenue of $10.1 billion and net income of $388 million, or $0.22 per diluted common share. Adjusted for a net after-tax gain of $25 million related to Compaq's investment portfolio, earnings per diluted common share were $0.21.
"The permanent improvements we are making in our business model are having a positive impact now, as well as positioning the company for long-term growth and profitability with increased financial leverage," Capellas said. "Nonetheless, as you have heard from others in the industry, this economic environment continues to be challengingcoupled with the fact that, for Compaq, this quarter represents a tough year over year comparison."
"We've seen some stabilization in the U.S.with the exception of the consumer retail segmentbut the market has weakened in Europe and other geographies," Capellas continued. "In this environment, we are focused on improving our business model and executing our strategic plans. In the short-term, the market remains volatile and thus difficult to predict with much certainty. However, we expect third quarter revenue to be in the range of $8.0 billion to $8.4 billion and earnings per share of $0.07 to $0.09."
Compaq Global Services revenue grew 7 percent year-over-year, or 13 percent in constant currency. Global Services now represents 23 percent of the company's revenue, up from 21 percent in the first quarter of 2001, showing steady progress towards the company's goal to grow services to more than 30 percent of overall revenue. In certain countriesincluding Japan, the United Kingdom and Switzerlandservices already represent in excess of 30 percent of total revenue.
The company's enterprise computing business was down 21 percent from the 2000 period due to weaker demand, an aggressive pricing environment and channel inventory reductions. Enterprise computing includes the Industry Standard Servers Group, Business Critical Solutions Group and Enterprise Storage Group, and represented 32 percent of second quarter revenue.
Of significance in the quarter, Compaq announced the simplification of its product roadmap through an agreement with Intel Corp. to standardize its high performance servers on the Intel Itanium™ processor family. The company also continued to invest in product innovation, introducing next-generation Compaq ProLiant™ DL380 and ML370 servers, as well as new TaskSmart™ appliance servers. In June, Gartner Dataquest reported that Compaq's Enterprise Storage Group was named the world's number one supplier of storage area networks (SANs) based on sales in 2000.
Revenue in the company's access businesswhich includes commercial and consumer personal computerswas down 22 percent. Unit shipments of commercial desktops were up 11 percent year over year, though revenue declined due to aggressive pricing. Additionally, Compaq extended its leadership in next-generation Internet access devices, shipping approximately 450,000 iPAQ™ Pocket PCs during the quarter, 17 percent of total commercial unit shipments. Including iPAQ Pocket PCs, total commercial unit shipments in the second quarter were up 21 percent year-over-year. Losses increased in the consumer PC segment largely due to the rapid fall of consumer demand, resulting in the need to dramatically reduce prices in order to decrease inventory.
Compaq will host a live audio webcast at 5:30 p.m. Eastern (4:30 p.m. Central) regarding its second quarter financial results. Details and links to the webcast can be found at http://www.compaq.com/corporate/ir/. This conference call is the property of Compaq Computer Corporation and any recording, reproduction, or rebroadcast of this conference call is expressly prohibited by Compaq.
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Founded in 1982, Compaq Computer Corporation ("Compaq") is a leading global provider of enterprise technology and solutions. Compaq designs, develops, manufactures and markets hardware, software, solutions and services, including industry-leading enterprise storage and computing solutions, fault-tolerant business-critical solutions, communication products, and desktop and portable personal computers that are sold in more than 200 countries. Information on Compaq and its products and services is available at http://www.compaq.com.