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Compaq Reports First Quarter Results
Significant Customer Commitments Highlight QuarterHOUSTON, April 18, 2002
Compaq Computer Corporation
"Our first quarter results continue to demonstrate Compaq's strong focus on customer success, on winning in key markets and on execution during what continues to be a challenging economic environment," said Michael Capellas, Compaq's chairman and chief executive officer.
"Capital spending pressures are causing the IT market to move aggressively toward industry-standard solutions where Compaq is the market leader," Capellas continued. "Our continued focus on the customer has yielded more than $1 billion in major account wins in this quarter alone across the financial services, government, education and healthcare industriesserving as an endorsement to our business strategy and proof of our customer commitment. And we have not backed off an inch from making steady improvements to our business model."
Recent customer wins include:
First quarter gross margin, as a percentage of revenue, was flat sequentially at 20.6 percent, as improved product mix in the Access Business Group, operational improvements in Industry Standard Servers and solid execution in Global Services offset revenue weakness in Business Critical Solutions. First quarter operating expenses were $1.4 billion, a sequential reduction of $101 million, and down $359 million year-over-year. This represents the fifth consecutive quarter of operating expense reductions.
"We are seeing the benefits of the operational and business model improvements we made over the past year," said Jeff Clarke, Compaq's chief financial officer. "Even as we prepare for Compaq's merger with Hewlett-Packard, we have demonstrated a relentless focus on execution that bodes well for the operations of the combined company."
In the same quarter last yearthe company's strongest in 2001Compaq reported revenue of $9.2 billion. Adjusted for special items, net income on an operational basis was $214 million, or $0.13 per diluted common share. Including special items, reported net loss was $131 million, or ($0.08) per diluted common share.
Compaq Global Services continued to be the company's strongest segment, posting segment operating profit of $229 million. Revenue for the quarter was $1.9 billion, down 3 percent on a year-over-year basis and down 7 percent sequentially, a normal seasonal decline. Global Services, which includes customer support, managed services, system integration and financial services and leasing, now comprises 24 percent of Compaq's revenue.
Revenue from the Enterprise Computing segmentbuilt on the pillars of fault-tolerant and high performance computing, enterprise storage and industry-standard serverswas down 13 percent from the fourth quarter to $2.4 billion, with segment operating profit of $18 million.
Revenue from the Industry Standard Server Group was $1.4 billion, essentially flat with the fourth quarter of 2001. Gross margin percentage improved sequentially by two points as the benefits of recent operational and distribution model improvements continued to be realized. Sequential market share gains are expected, particularly in North America. Compaq addressed customers' needs for reduced costs, greater flexibility, and increased agility by introducing the Compaq ProLiant BL e-Class blade designed for adaptive computing, which achieves new levels of efficiency and cost savings in the data center by balancing power, performance and space utilization.
In the Enterprise Storage Group, revenue was $394 million, down 13 percent sequentially. Despite weak market conditions and an aggressive pricing environment, gross margin percentage was essentially flat on a sequential basis. As the low cost producer and leading technology innovator, Compaq's open, modular solutionssuch as the StorageWorks family of productsprovide customers with a compelling price/performance equation. Compaq's annual ENSA@work storage conferences, held this month in Europe and the United States, attracted more than 2,000 delegates eacha record customer turnout.
In the first quarter, the Business Critical Solutions Groupcomprised of fault-tolerant and high performance systemsrevenue was $517 million, down 33 percent sequentially, following a strong fourth quarter that included three large supercomputer contracts. New customers comprised 16 percent of revenue for fault-tolerant systems. A report released by IDC during the quarter ranked Compaq the #1 vendor in high performance server revenue. Compaq's leadership in this arena is reflected in a continuing wave of major supercomputer contract wins in computer simulation and animation, as well as other general research applications during the past 12 months.
Revenue in the company's Access business segment was $3.5 billion, a decrease of 6 percent sequentially, and down 18 percent year-over-year. The segment posted a loss of $36 million for the quarter, a sequential improvement of $33 million over the fourth quarter, reflecting continued customer acceptance of new products and continued business model improvements. Commercial PC revenue grew 6 percent sequentially despite difficult market conditions.
Earnings Conference Webcast
Compaq will host a live audio Webcast today at 5:00 p.m. Eastern (4:00 p.m. Central) regarding its first 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.
Financial Discussion (Adobe PDF format*)
Press Release (Adobe PDF format*)
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Founded in 1982, Compaq Computer Corporation is a leading global provider of information technology products, services and solutions for enterprise customers. Compaq designs, develops, manufactures and markets information technology equipment, software, services and solutions, including industry-leading enterprise storage and computing solutions, fault-tolerant business-critical solutions, communication products, personal desktop and notebook computers, and personal entertainment and Internet access devices that are sold in more than 200 countries directly and through a network of authorized Compaq marketing partners. Information on Compaq and its products and services is available at http://www.compaq.com.
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