Compaq shares gained 1 1/16 to 34 3/4 after the company hurdled Wall Street estimates with second quarter operating earnings of $32m (£19.5m), or 2 cents a share, on sales of $5.8bn (£3.5bn). Wall Street was expecting Compaq to break even for the quarter, according to First Call consensus estimates.
Including charges related to the Digital acquisition, the company reported a net loss of $3.6bn (£2.2bn), or $2.33 per share. Revenue in the quarter was up 5.7 percent from $5.5bn (£3.35bn) a year ago. The second quarter sales gains were attributed to increased services revenue, which was $460m (£280.49m), compared to $110m (£67m) in the same quarter a year ago. The company also indicated that it met its inventory goals for the quarter. Compaq has been wrestling with inventory problems in recent quarters.
Shares of Compaq have been on a steady rise on news that the company was correcting its inventory problems and was making money from its sub $1000 line of computers.
Now the company has to integrate Digital. The merger was completed on June 11. "We are now moving quickly with the integration of Digital," said Eckhard Pfeiffer, Compaq CEO, in a statement. That integration resulted in a host of charges. Compaq took a $3.2bn (£1.95bn) write-off for in-process technology, $291m (£177.43m) for layoffs and plant closings, and $139m (£84.75m) for other pricing adjustments on Digital products.
Consistent with previous guidance, Compaq said the third quarter will be "transitional" as the company integrates Digital. "We continue to believe earnings for the combined companies will be accretive as early as the fourth quarter," said Earl Mason, Compaq financial chief, in a statement.