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
"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
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.