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Fri, Apr 13, 2001 EDT
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Compaq to Cut 5,000 Jobs, Lowers Earnings Estimate
By Mark Babineck   Associated Press
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HOUSTON — A persistent slump in domestic sales is causing the world's largest computer corporation to get smaller.

Compaq Computer Corp. will shed 5,000 jobs, about 7 percent of its work force, according to an announcement Thursday in which the Houston-based company also said it would miss analysts' first-quarter earnings estimates.

"The intention here is to be quick and fast (with layoffs)," said Michael Winkler, executive vice president for global business units. "We know where the cuts are all going to be but we can't say yet because we haven't told our employees."

The company will reveal where the layoffs occurred next month, Winkler said. The company did say most would come in supply chain and marketing organization changes as Compaq merges its consumer and commercial personal computing units, a restructuring expected to cost between $125 million and $150 million this quarter.

Compaq, which has 67,000 employees worldwide, also reduced its first-quarter earnings outlook to between 12 cents and 14 cents per share. Analysts surveyed by First Call/Thomson Financial were expecting 18 cents per share for the three months ended March 31.

In the year-ago quarter, Compaq earned 16 cents per share, excluding gains in its investment portfolio.

Chairman and Chief Executive Officer Michael Capellas told analysts a sharp decline in North American personal computer sales was the culprit, saying that the company's other businesses are faring well domestically and worldwide.

The news didn't appear to surprise analysts, who have watched other high-tech companies slim down and warn about soft profits in recent weeks.

"The main thing Compaq has got to try to do is not lose market share during this period and keep tight control on expenses," said Daniel Niles, an analyst for Lehman Brothers.

Compaq estimates it will save $500 million to $600 million because of the layoffs.

Compaq had 85,000 employees after it purchased Tandem Computers Inc. in 1997 and Digital Equipment Corp. in 1998. Layoffs and attrition after the mergers, plus a subsequent earnings crash that prompted a massive management shakeup and further cuts, have whittled the work force by 21 percent.

Along with several other computer companies, Compaq also had to lower earnings estimates in the final quarter of 2000, blaming slower than expected holiday sales. The problems within the industry have continued this year, with Gateway Inc. and Dell Computer Corp. among others having warned about earnings.

Analysts anticipate things will get worse before they improve for the industry.

"It's also the weakening economy around the world. Corporations have locked down their (information technology) spending, so they're not spending the money," said Eric Rothdeutsch, an analyst for Robertson Stephens. "The lack of new features in PCs and high saturation rates have been a longer term secular trend. Now it's a more economic trend of nobody spending money."

Capellas also announced several upper-management changes Thursday. He named Jeff Clarke chief financial officer, replacing Jesse Greene.

Greene, a former IBM and Kodak executive hired as chief financial officer a year ago after a seven-month search, moved to senior vice president of strategic planning.

"These changes take advantage of what they each do best and I have full confidence in both of them," Capellas said.

Also, Mike Larson was named senior vice president of the newly combined personal computing group. Capellas said Doug Fox, previously senior vice president of marketing and strategy, has left the company.

Shares of Compaq rose 15 cents to $18.50 in trading on the New York Stock Exchange before the news was released Thursday afternoon. In after-hours trading, shares rose 5 cents to $18.55.

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