By William Fellows
Compaq Computer Corp CEO, Eckhard Pfeiffer said neither IBM Corp nor any other individual vendor’s pricing strategy has led directly to its latest financial woe. Moreover the PC era is not over, he insisted. Pfeiffer blamed Compaq’s expected first quarter shortfall – $0.15 earnings, or around $255m income, against an expectation of $0.30 on $9.4bn revenue – on a mix of events including lower demand, weak market conditions, difficult sales mix and pricing pressure across all geographies lead to lower gross margins.
Compaq is in a difficult place. It is being compared to other PC vendors with their continued strong growth rates, while it is still trying to digest Digital Equipment Corp – it doesn’t even use a single general ledger and accounting package across the organization yet. Nevertheless the shortfall is on its own expectations which it realized back in February were not attainable without a strong back-end to the quarter which didn’t happen. Last week Compaq said fewer higher-margin option sales such as memory and storage also contributed to the weak quarter. Pfeiffer claims that the company’s new direct sales model is well coordinated, and the relationship with the channel is good. While channel inventory levels remain at around about four weeks, Pfeiffer said the company’s new supply chain, outsourcing and order fulfillment strategies offer a significant cost reduction potential. Compaq said it had no plans for additional restructuring beyond the lay-offs it has already planned to complete before the end of June, although analysts believe that Compaq may have achieved its DEC headcount reductions by the end of the March quarter instead of June.
Moreover, they think Compaq’s hybrid sales model of part direct and part indirect is not working well. We suspect issues in the March quarter could linger, says Merrill Lynch & Co. Pfeiffer conceded that some of the market characteristics in terms of pricing and demand it experienced in March are also being reflected in April. Opportunities include additional synergies Compaq is seeking from its DEC acquisition, Pfeiffer said, claiming the company is still in the midst of identifying high- end projects, which should deliver a significant upswing in business. The full earnings report is due April 21.
