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Compaq Reports 2001 Third Quarter Results
HOUSTON, October 23, 2001
Compaq Computer Corporation
"The third quarter was one of the most challenging ever for Compaq and for our industry," said Michael Capellas, chairman and chief executive officer. "IT demand continued to weaken globally, which resulted in aggressive pricing, while the events of September created significant logistical challenges. We did, however, see positive momentum in our Global Services business, and our enterprise technology performed well given overall market conditions."
The company continued to show progress in the execution of cost control and go-to-market initiatives. During the quarter, inventory across the supply chain was reduced by $600 million, operating expenses decreased sequentially by more than $100 million, and the company generated cash from operations for the sixth consecutive quarter. Compaq also continued to enrich its Computing on Demand program by announcing Access on Demand, enabling customers to pay only for the computing services and hardware they need.
Third quarter gross margin, as a percentage of revenue, was 19.9 percent, down 1.6 points sequentially and 4.1 points on a year-over-year basis, resulting from continued weak demand and aggressive pricing. Third quarter operating expenses were $1.6 billion, a decrease of $289 million from the same period last year, reflecting continued expense discipline and progress on restructuring activities.
The company's operational results exclude net investment losses of $514 million ($379 million net of tax), primarily related to Compaq's investment in CMGI, Inc. Compaq acquired these assets in a non-cash exchange for a majority stake in AltaVista Co. in 1999. Including this amount, the company reported a net loss of $499 million, or $(0.29) per diluted common share.
In the same quarter last year, Compaq reported revenue of $11.2 billion and net income of $557 million, or $0.31 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 $0.30.
"We do not anticipate dramatic changes in corporate IT spending, particularly through the first half of 2002. As for the fourth quarter of 2001, we expect revenue to be in the range of $7.6 to $7.8 billion and a loss of about $0.03 per share," Capellas said.
Revenue in Compaq Global Services was $1.9 billion, up 2 percent year-over-year, or 5 percent in constant currency. Operating profit improved to $284 million or 15 percent of revenue. The services business now comprises 25 percent of Compaq's revenue, up from 23 percent in the second quarter.
The company's enterprise computing segment reported a loss of $104 million on revenue of $2.4 billion due to weakness in telecommunications and financial services markets, aggressive pricingparticularly for low-end serversand channel inventory reductions. Enterprise computing includes the Industry Standard Server Group, Business Critical Solutions Group and Enterprise Storage Group. Enterprise computing represented 32 percent of third quarter revenues.
"Despite tough market conditions, we expect that our Enterprise Storage and Industry Standard Server groups gained unit market share sequentially," Capellas said.
In addition, Compaq announced last week the industry's most powerful mid-range server, the AlphaServer ES45, the first system in its class to utilize Compaq's new 1GHz, 64-bit Alpha microprocessor. The Pittsburgh Supercomputing Center is using 760 of these systems for the world's largest non-military supercomputer. Business Critical Solutions' NonStop Himalaya servers recorded a number of strong customer wins in the quarter, including Sabre Holdings Corp.
Revenue in the company's Access Business Group was $3.3 billion, down 42 percent, for a loss of $248 million. The company continued its aggressive program to redefine the access business model, including reducing inventory across the supply-chain by more than $400 million during the quarter, increasing inventory turns and driving new, higher margin categories through innovation and design.
Compaq will host a live audio webcast today at 5:30 p.m. Eastern (4:30 p.m. Central) regarding its third 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 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.