High-Tech Profit Tumbles Catch Up With Compaq
Sending the latest jolt through the technology industry, Compaq Computer Corp. on Friday warned that flat computer sales and price wars would wipe out its profits in the current quarter.
Compaq, the world’s largest maker of personal computers, said it had cut prices of its business desktops more steeply than expected due to intense competition for corporate customers.
Its warning came after Intel Corp. and Motorola Inc. this week said that their quarterly results also would fall below expectations and further raised the possibility of a slowdown in the technology industry.
Compaq chief executive Eckhard Pfeiffer said the company has resorted to aggressive price cuts to trim bloated inventories. Like other PC makers, Compaq is trying to dramatically reduce warehouse stocks so it can bring new products to market faster and avoid the costs of cleaning out old inventories.
Before Compaq’s warning that it would just about break even in the current quarter, analysts had expected Compaq to report a $525 million profit, according to a survey by First Call Corp. A year ago, the Houston-based company earned $387 million on sales of $4.81 billion.
The disappointing outlook was released after the stock market closed. Compaq’s shares had gained 50 cents to $27.62-1/2 on the New York Stock Exchange.
But in after-hours trading, Compaq fell $2.50 to $25.12-1/4 and led other big high-tech names lower. Dell Computer Corp. was down $6.75 from its close to $131.75, Microsoft Corp. was down $2.56-1/4 to $80, and Intel was down $1.37-1/2 to $76.75, according to Dow Jones Newswires.
The financial warning could have negative implications for Compaq’s agreement to purchase Digital Equipment Corp. Under the deal, Digital shareholders would get $30 a share in cash and 0.945 Compaq shares for each Digital share. The deal was expected to be completed in April or May.
Compaq said it was viewing the April-June quarter with caution as well.
Compaq’s trouble in the market for business computers illuminates why Intel is having troubles meeting expectations. Intel, the largest maker of computer chips, said its slow sales were partly due to PC makers that were forced to sell from existing stocks of computers instead of buying chips for new computers.
The Intel warning late Wednesday sent the stock market swooning on Thursday, arousing fears that the booming computer industry may be slowing. Motorola on Thursday also warned of a disappointing quarter, blaming low prices for computer chips and mobile telephone equipment in Asia.
However, industry analysts generally say Intel and Compaq are being hurt by inventory problems, rather than sagging demand industrywide.
Some stocks that moved substantially or traded heavily Friday:
NYSE
Motorola, down 2-7/8 at 53.
Schaumburg, Ill.-based Motorola said late Thursday that its firstquarter earnings will fall well short of analysts’ expectations, mostly because of weak Asian currencies.
Columbia/HCA Healthcare, up 2-13/16 at 29-3/16.
The Nashville, Tenn.-based hospital chain said it expects its firstquarter earnings to drop substantially from a year ago, but beat Wall Street’s forecasts.
NASDAQ
PRT Group, down 9-9/16 at 9-9/16.
The New York-based provider of information technology software and services said it will report a first-quarter loss of $3 million amid increased expenses.
S3, up 1-7/16 to 7-3/16.
The stock rose amid speculation that Advanced Micro Devices may be interested in acquiring the manufacturer of microprocessors for graphics, Dow Jones News Service reported, citing market players. S3 is based in Santa Clara, Calif.,
Staples, up 1-13/16 at 23-1/4.
The office-supply retailer reported fourth-quarter earnings that beat Wall Street expectations.