Compaq to Slash 4,000 More Jobs Worldwide
Facing price wars and weakening sales in Europe, Compaq Computer Corp. plans to fire 4,000 more workers and said its second-quarter revenue will fall 9% from the first three months.
Compaq expects its quarterly revenue to be $8.4 billion, badly missing the company’s projection a month ago that sales would be $9 billion.
The Houston-based computer maker said earnings from operations would be 4 cents a share in the current quarter, meeting lowered earnings estimates from Wall Street. To keep cutting costs, Compaq is expanding job cuts on top of the 4,500 layoffs announced earlier this year.
“Given the tough economic and market environment, we will move even more swiftly and go even deeper in our structural cost reduction programs,” Compaq Chief Financial Officer Jeff Clarke said Tuesday.
Clarke said sales in Europe, especially in Britain, Germany and Switzerland, fell steeply in June, and Compaq’s average selling price per unit declined. Compaq’s full results for the quarter will be released July 25.
Compaq’s shares declined 44 cents to $13.76 in trading on the New York Stock Exchange. Once the earnings warning was released, the shares recovered to $14.18 in after-hours trading. The stock has fallen by nearly half in the last year.
“It is just another data point telling you it is going to get worse before it gets better,” said Lehman Bros. analyst Dan Niles. “Cutting costs very aggressively is enabling them to come in very close to the bottom line.”
Analyst David Bailey, with Gerard Klauer Mattison & Co., said, “I don’t think there is a lot positive to take away from this announcement.”
In last year’s second quarter, Compaq had a profit from operations of $362 million, or 21 cents a share, on sales of $10.13 billion.
“It’s a very tough market,” Clarke said. “We continue to see very aggressive pricing across all our regions. It’s most apparent in North America and catching up in Europe.”
The poor showing in Europe suggests that the economy there is continuing to worsen and that a price war among major computer makers is spreading. Two months ago Dell Computer Corp., Compaq’s chief rival, trimmed profit projections for the current quarter.
Dell is slashing prices to lure buyers during the slowdown and earlier this year overtook Compaq as the No. 1 PC maker.
Clarke said Compaq is moving aggressively to add more consulting services, where revenue is up more than 10% after adjusting for currency fluctuation. The company hired 750 people for its services division in the quarter just ended.
Compaq will take a $490-million charge in the second quarter to cover severance payments and for the closing facilities. Those write-downs include some assets devoted to high-end Alpha semiconductor chips, which Compaq is phasing out.
With the latest job cutbacks, Compaq is shedding 12% of its work force this year. The staffing cuts should save $900 million a year, the company said.
Most of the firings will be among workers who make consumer PCs and those in distribution jobs. Compaq will close plants in Erskine, Scotland, and Houston, eliminating 1,000 employees, Clarke said. The workers least affected will be engineers and direct-sales employees, he added.
“A 9% sequential decline in revenue is nothing to be particularly happy about,” said Joe Beaulieu, an analyst at Morningstar Inc. “Estimates have already been revised down several times.”
In April, Compaq said it would earn 5 cents a share in the second quarter, dramatically less than the 17 cents analysts polled by First Call/Thomson Financial expected at the time.
Then Clarke reiterated the revised sales and profit forecast on June 8.
“They had better learn to forecast better,” said Henry Asher, president of money manager Northstar Group Inc., which owns shares of Dell.
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Times wire services were used in compiling this report.
