Compaq to Begin Share Buyback
Compaq Computer Corp. said Thursday it plans to buy back as many as 100 million, or 6.7%, of its shares as it tries to bolster investor confidence while grappling with a new strategy for selling personal computers.
The $3-billion buyback comes as the world’s largest PC maker has seen its profit and its stock drop as rivals Dell Computer Corp. and Gateway Inc. post sales and earnings gains. Unlike Compaq, Dell and Gateway sell direct to consumers without big inventories.
News of the buyback, from the company’s annual shareholders meeting in Houston, helped Compaq’s shares, which rose 38 cents to close at $28.88 on the New York Stock Exchange.
The buyback may soothe investors, yet Compaq still faces weak corporate demand and concern about its pending $9.3-billion acquisition of Digital Equipment Corp.
Compaq said it’s now trying to move to the build-to-order strategy of its rivals. The company sold too many computers to distributors in late 1997, creating a glut when demand didn’t materialize. That forced Compaq to sacrifice profit with price cuts and incentives.
The company still is trying to reduce inventory and said it expects its inventory level to be at about two weeks by June. Compaq is expected to break even in the second quarter and its profit for the year is likely to be about half of prior expectations. In the first quarter, its profit plunged 96%.
The buyback “reflects our confidence in Compaq’s long-term growth,” Chairman Ben Rosen said, adding that the plan also is designed to offset dilution from the issuance of stock for employee-incentive programs.
