Compaq Latest to Cut Staff, Lower Estimates
Stung by falling sales and shrinking market share, Compaq Computer Corp. is abandoning what it called its "more prudent" sales approach and is now preparing for a war on pricing. The worlds largest PC vendor, after warning late last week that earnings were falling short of projections, vowed to slash costs, streamline its business and become more competitive in pricing its products.The strategy marks an abrupt about-face by the Houston computer maker, whose executives just weeks earlier had derided rivals efforts to fuel sales by slashing prices. While Compaq last week blamed much of its recent problems on a souring economy, the company has seen its share of the PC and low-end server market slowly eroded by the encroaching Dell Computer Corp. The cross-state rival, based in Round Rock, Texas, is expected to overtake Compaq as the worlds largest PC seller in coming months, according to some market analysts. Yet Dells market-share gains have come at a steep price, as the company has seen its profit margins fall to historically low levels. Dell was also forced to issue earnings warnings last month and announced it was trimming its work force by 1,700 jobs. In January, Compaq belittled its competitors efforts to foster sales through low prices, with company Executive Vice President, Global Business Units Mike Winkler calling such gains "fleeting" and pledging that his company would stick to a "more prudent and reasonable" approach. But with its sales off and market share on the wane, Compaq had to respond, analysts said. "Compaqs losing their shirt in the PC business, and they are losing market share in their industry-standard [Intel-based] server business," said Ashok Kumar, an analyst at U.S. Bancorp Piper Jaffray Inc., in Minneapolis. As part of its new offensive, Compaq announced it will cut about 5,000 jobs, or 7 percent of its work force; combine its commercial and consumer PC groups; and initiate other cost-saving moves to trim operating expenses by up to $600 million annually. Compaq also warned it will miss first-quarter estimates. The company projected revenues of $9 billion to $9.2 billion, as opposed to its previous forecast of $9.6 billion.
"While we are not going to chase share at all cost, let there be no doubt we will be very aggressive in our core and target markets," said company Chairman and CEO Michael Capellas in a conference call with market analysts late last Thursday.