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Compaq Computer Corporation Public Relations Department |
P.O. Box 692000 Houston, Texas 77269-2000 Tel 281-514-0484 Fax 281-514-4583 http://www.compaq.com |
News Release |
COMPAQ COMPUTER LOGO
HOUSTON, Oct. 26, 1999 - Compaq Computer Corporation (NYSE: CPQ) today announced worldwide revenue of $9.2 billion for the third quarter ended September 30, 1999. Total revenue for the quarter grew by 5 percent over the third quarter of 1998 (6 percent in constant currency) and was down 2 percent sequentially.
Compaq reported net income for the third quarter of $140 million, or $0.08 per share. The reported results include previously announced restructuring and related charges of $868 million and a one-time gain of approximately
$1.2 billion from the sale of a majority interest in AltaVista Company to CMGI. On an operational basis, net income for the quarter was $117 million or $0.07 per
share. [1]
"In the third quarter, Compaq began to aggressively execute the actions we outlined in July," said Michael Capellas, Compaq President and Chief Executive Officer. "While our revenue numbers were down sequentially, we
achieved our earnings per share target, gross margin was up, and operating expenses were down."
Total gross margin as reported for the third quarter was 23.2 percent. On an operational basis, total gross margin for the third quarter was 23.3 percent, an improvement of 2.8 percentage points from the second quarter.
Operating expenses in the third quarter were $2.016 billion. Operating expenses decreased from $2.198 billion in the second quarter of 1999 to $1.974 billion on an operational basis in the third quarter, a 10 percent ($224
million) improvement.
Business Overview
This past July, Compaq said it was aligning its businesses around competitive go-to-market models designed to clarify product, service, and solution roadmaps. The company created three global business units and will report
financial results of each group quarterly.
In the Enterprise Solutions and Services Group, revenue was $4.9 billion, up 12 percent from the third quarter of 1998 and flat sequentially. Segment operating income was $599 million, an increase of 56 percent
sequentially and 87 percent from the third quarter of 1998. The enterprise business represented 54 percent of Compaq's revenue in the third quarter.
Product revenue grew 14 percent year over year to $3.3 billion and was flat sequentially. The Group saw strong growth in its: Industry Standard Server Division, which grew 27 percent over the third quarter of 1998; Business
Critical Server Division (Alpha and Himalaya platforms; Tru64 UNIX, OpenVMS, and Linux operating systems), which grew 12 percent over the third quarter of 1998; and Storage Division, which grew 12 percent year over year.
Services revenue grew 7 percent year over year to $1.6 billion and was down 1 percent sequentially, with Compaq Professional Services growing 17 percent from the third quarter of 1998.
The Group's performance was underscored by the widespread market acceptance of Compaq's NonStop(tm) eBusiness strategy, which is the foundation of the company's plan to help customers build the next generation Internet
infrastructure.
Compaq's Consumer Group revenue was $1.5 billion, up 22 percent sequentially and 15 percent from the third quarter 1998. Segment operating income was $65 million, an increase of 38 percent sequentially and 51 percent
from the third quarter of 1998. The consumer business represented 16 percent of the company's revenue in the quarter.
Compaq maintained its strong number one worldwide consumer PC marketshare position during the third quarter and experienced unit growth of 53 percent in desktop PCs and 44 percent in mobile PCs year over year. The Consumer
Group saw significant year over year growth in Europe, Latin America, Asia Pacific region, and China during the third quarter.
In the Commercial Personal Computing Group revenue was $2.7 billion, a decrease of 16 percent sequentially and 12 percent from the third quarter 1998. Compaq's commercial PC segment reported an operating loss of $169
million during the third quarter, compared to a loss of $225 million in the second quarter, and an operating profit of $116 million in the third quarter of 1998. Commercial PC products accounted for 30 percent of Compaq's revenue in the third quarter.
Compaq cited several factors for the decline in its commercial PC business, including reductions in channel inventory; aggressive pricing pressure; and the impact of the Taiwan earthquake.
"Customer response to the PC products we launched during the quarter was tremendous and we continue to be the number one PC supplier in the world," said Capellas. "Nonetheless, we have not kept pace with shifts in the PC
sales and distribution model. We are moving aggressively to new business models which will lead the next generation of PC innovation and Internet access."
The three business groups' results exclude the effects of AltaVista, Compaq Financial Services, and certain corporate and unallocated shared expenses, which total $426 million in the third quarter compared to $323 million in
the third quarter of 1998.
Overall, the geographic growth of Compaq's business during the third quarter was (on a year over year basis): North America grew 2 percent; EMEA grew 2 percent; Latin America grew 27 percent; Asia-Pacific grew 18 percent;
Japan grew 14 percent; Greater China grew 7 percent.
Outlook
In summary, Capellas said, "We set specific goals for the third quarter. The company returned to profitability, we aligned our businesses around competitive models, and we began to articulate a clear strategy to enable the
next-generation Internet infrastructure, a key to accelerating profitable growth for Compaq. We do face some significant challenges, but are confident we will continue to make good progress on our core business objectives and drive increased value for
our shareholders."
Company Background
Compaq Computer Corporation, a Fortune Global 100 company, is the second-largest computer company in the world and the largest global supplier of computer systems. Compaq develops and markets hardware, software, solutions,
and services, including industry-leading enterprise computing solutions, fault-tolerant business-critical solutions, enterprise and network storage solutions, commercial desktop and portable products and consumer PCs. The Company is an industry leader in
environmentally friendly programs and business practices.
Compaq products are sold and supported in more than 100 countries through a network of authorized Compaq marketing partners. Customer support and information about Compaq and its products are available at http://www.Compaq.com
.
Compaq, Registered U.S. Patent and Trademark Office. Product names mentioned herein may be trademarks and/or registered trademarks of their respective companies.
For further editorial information, contact:
ASSETS
Compaq Media Relations
Jim Finlaw
[email protected]
Compaq Media Relations
Alan E. Hodel
[email protected]
Compaq Investor Relations
281-514-9549 OR 800-433-2391
[email protected]
COMPAQ
COMPUTER CORPORATION
CONSOLIDATED
BALANCE SHEET
(Unaudited)
September 30,
December 31,
(In millions, except par value)
1999
1998
Current assets:
Cash and cash equivalents
$ 2,253
$
4,091
Short-term
investments
1,444
-
Accounts receivable, net
6,618
6,998
Inventories
2,131
2,005
Deferred income taxes
1,808
1,602
Other current assets
452
471
Total current assets
14,706
15,167
Property, plant and
equipment, less accumulated depreciation
3,141
2,902
Deferred income taxes
809
1,341
Investments
3,039
354
Intangible and other
assets
3,056
3,287
$ 24,751
$ 23,051
LIABILITIES
AND STOCKHOLDERS' EQUITY
Current
liabilities:
Short-term borrowings
$ 1,312
$ -
Accounts payable
3,707
4,237
Deferred income
977
845
Accrued restructuring costs
1,327
1,110
Other current liabilities
4,685
4,541
Total current
liabilities
12,008
10,733
Postretirement and other
postemployment benefits
539
545
Minority interest
-
422
Stockholders' equity:
Preferred
stock, $.01 par value
(authorized:
10 million shares; issued: none)
Common stock
and capital in excess of $.01 par value
(authorized:
3 billion shares; issued and outstanding:
1,711
million and 1,693 million shares at September 30, 1999 and
-
-
1,698 million and 1,687
million shares at December 31, 1998)
7,555
7,270
Retained earnings
4,658
4,501
Accumulated comprehensive income (loss)
583
(36)
Treasury stock at cost
(592)
(384)
Total stockholders' equity
12,204
11,351
$ 24,751
$
23,051
COMPAQ
COMPUTER CORPORATION
CONSOLIDATED
STATEMENT OF INCOME
(Unaudited)
Three months ended September 30,
Nine months ended September 30,
(In millions, except per share amounts)
1999
1998
1999
1998
Revenue:
Products
$
7,587
$
7,280
$ 23,187
$
18,227
Services
1,621
1,511
4,860
2,083
Total
revenue
9,208
8,791
28,047
20,310
Cost of sales:
Products
6,009
5,569
18,348
14,576
Services
1,063
1,037
3,300
1,416
Total
cost of sales
7,072
6,606
21,648
15,992
Selling, general and
administrative expense
1,615
1,581
4,824
3,417
Research and development
costs
401
430
1,271
924
Purchased in-process
technology
-
-
-
3,234
Restructuring and related
charges
868
-
868
393
Gain on sale of
businesses
(1,156)
-
(1,182)
-
Other income and expense,
net
51
18
119
(56)
1,779
2,029
5,900
7,912
Income (loss) before
provision for income taxes
357
156
499
(3,594)
Provision (benefit) for
income taxes
217
41
262
(93)
Net income (loss)
$ 140
$ 115
$ 237
$ (3,501)
Earnings (loss) per
common share:
Basic
$ 0.08
$ 0.07
$ 0.15
$ (2.21)
Diluted
$ 0.08
$ 0.07
$ 0.15
$ (2.21)
Shares used in computing
earnings (loss) per
Common
share:
Basic
1,693
1,675
1,692
1,585
Diluted
1,730
1,737
1,737
1,585
[1] Operational results exclude the gain from the sale of a majority interest in AltaVista, restructuring and related charges, non-cash AltaVista compensation charges, and related income tax effects.
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