No quick fix in store for Compaq
Compaq Computer Corp.'s announcement today that it will be at least one more quarter before it gets back on track came as little surprise to industry watchers.
"It's a transition process," said Louis Mazzucchelli, an analyst at Gerard Klauer Mattison in New York. "Whenever you're in the middle of a transition, anything can happen. I think once they get through this, they're well-positioned strategically, but this is going to be a tedious process. It will take a quarter, maybe two before they're out of it."
Compaq's (CPQ) stock was up 63 cents to $26.69 in morning trading.
This morning the company reported first-quarter net income of $16 million, or 1 cent per share, down from $414 million, or 28 cents per share, in the year-ago quarter. Sales rose slightly during the quarter, hitting $5.68 billion, compared with $5.27 billion a year ago.
The company has been hit particularly hard in the North American commercial segment, analysts said.
"The enterprise is clearly a much more competitive market, and [Compaq said] margins are not expected to return [to previous levels]," said Ashok Kumar, an analyst at Piper Jaffrey in Minneapolis. "And the bulk of what they have in the channel now is based on Pentiums that are clearly obsolete. Clearly, Dell [Computer Corp.] is twisting the knife in their back. We expect Dell to pick up market share."
Pressure in the desktop market, which has witnessed dramatic drops in average selling prices, was expected. But analysts said Compaq sees the pressure extending to low-end servers as well.
On the upside, consumer pricing pressures appear to be dissipating. Revenues there grew about 50 percent in the North American market, Kumar said.
Although the quarterly loss was steep, analysts were expecting it. Compaq's numbers were in line with those predicted by a First Call survey. Investors had lowered their expectations dramatically after Compaq warned last month that sales out of the channel were disappointing.
Looking ahead, Chief Financial Officer Earl Mason said it will take another quarter of adjustment to put the company's core business "on a track of improved profitability."
Compaq, of Houston, expects a break-even quarter, officials told analysts during a conference call. That's below the roughly 9 cents per share predicted by First Call.
The company can be reached at www.compaq.com.