Compaq will be forced to cut up to 8,000 of its workforce before the end of the year despite reporting a slightly smaller than expected second-quarter loss.
In the second quarter ended 30 June, the supplier posted a net loss of $184m, or $0.11 per share, compared with last year's loss of $3.6bn, which included charges for its acquisition of Digital Equipment. Revenue rose to $9.4bn from $5.8bn in the same period last year.
Michael Capellas, who was named as president and chief executive of Compaq two weeks ago, attributed the loss to "inadequate revenue growth, a decline in gross margins and an increase in operating expenses".
He also blamed some of the shortfall on "restructuring efforts in France and Germany, and increased competition in the UK which caused short-term losses, as well as a softness in financial services which has been a traditional area of strength for Compaq".
But Compaq also said it expected to take a restructuring charge in its third quarter of between $700m and $900m, after cutting between 6,000 and 8,000 staff and closing some facilities, although locations have not yet been determined.
Capellas said the restructuring would ensure Compaq maintained its lead in delivering the latest products by simplifying its distribution strategy and reducing costs. This would result in a return to profitable growth, he claimed.
Capellas added that enterprise-related revenue increased 11 per cent year-on-year, with strong growth in the standard server and storage sectors.
North American sales increased 32 per cent, but only grew by six per cent in Europe and Asia.
The results followed warnings by Compaq in June that its figures would be hurt by pricing pressures in the PC sector, lower than expected revenue growth and a non-competitive cost structure. Although analysts at First Call had previously expected earnings of $0.20 per share, this was revised to a loss of $260m, or $0.15 per share, as a result.
In the second quarter, Compaq's gross margin fell to 20.5 per cent from 24.7 per cent in the first, while operating expenses increased to $2.2bn in the second quarter from $1.9 bn.
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