Compaq sales and earnings take nosedive

Compaq Computer last night posted sharply lower second-quarter profits and warned that sales of its personal computers could continue to erode in the coming months as a downturn in the computer sector spreads around the world.

"It's an understatement to say that we're in the midst of an extremely challenging global market," Mr Michael Capellas, chairman and chief executive officer, said in a conference call to announce second quarter results after markets closed.

Mr Capellas said Compaq had eliminated 5,100 jobs out of a planned total of 8,500 lay-offs this year, to leave a total workforce of 68,200. Some of the remaining 3,400 redundancies would be in European operations, he warned, without giving specific details.

"We have announced an 8,500 person reduction. We have got 5,100 complete and we have done it very fast," Mr Capellas told analysts. "The balance of that reduction is in areas which are consolidation of manufacturing plants and in some areas of Europe, where we are still continuing to work through some of the issues related there."

Compaq, the number two maker of personal computers in the world, has operations in several European countries and employs 2,300 people in Dublin, Galway and Belfast. The company lost the global lead in PC sales to Dell Computer earlier this year in a no-holds-barred price war which reduced earnings for all PC makers.

It has embarked on a severe round of cost-cutting, and this "very tough action" meant that expenses for the last quarter were the lowest in three years, Mr Capellas said. They would cut costs further in the third quarter. Meantime inventory had been reduced by 5 per cent.

The company, which provides enterprise technology and solutions, reported net income from operations of $67 million (#76 million), or $0.04 per diluted common share, for the second quarter.

Revenues totalled $8.5 billion, down from $10.14 billion in the same quarter a year earlier. Profit was down to 4 cents a share from the previous quarter's $200 million, or 12 cents per share.

Including a $493 million restructuring charge, Compaq posted a net loss of $279 million, or 17 cents per diluted share in the second quarter, compared to a profit of $388 million, or 22 cents per diluted share a year earlier, the company said.