Compaq Computer Corp. surpassed even raised Wall Street expectations in posting a $92 million profit for the quarter, and offered a cautiously optimistic forecast calling for IT spending to pick up in the second half of the year.
In addition to detailing the Houston computer makers financial results, Compaq Chairman Michael Capellas used a conference call with analysts to once again lobby in favor of its highly debated proposed buyout by rival Hewlett-Packard Co.
“The merger clearly has been controversial, but we remain firm in our conviction that it is in the best interests of shareholders, customers, partners and employees,” Capellas said. “And we will work aggressively in the coming weeks to win shareholder and regulatory approval.”
Shareholders of both companies are expected to vote on the $25 billion buyout, announced in September, in the next few weeks, although no official date has been announced. The deal, which required the approval of more than 50 percent of each companies stockholders, faces still opposition from the heirs of HPs co-founders.
Capellas dismissed critics claims that Compaqs struggling PC business will prove a drag on HP earnings, arguing instead that the computer maker will strengthen HPs business.
“We bring some important enterprise strengths that HP needs, including fault tolerant systems, high performance technical computing, industry standard servers, and leadership in storage and storage area networks,” he said. “Together we will also have much broader sales and service coverage, which will expand our growth opportunities worldwide.”
Despite the potential distraction of the merger, Capellas said it hasnt hurt business, as demonstrated by its return to profitability.
“Our ability to exceed expectations in a tough business environment demonstrates Compaqs strong focus on execution,” he told analysts.
For the quarter, net income was $92 million, or 5 cents per share. Excluding a $36 million charge for merger-related expenses, the company earned 6 cents per share. That far exceeded analysts expectations of 1-cent per share profit, according to a survey by Thomson Financial/First Call.
Wall Street analysts had been projecting a loss for the quarter as recently as last week, at which time it revised its numbers upward on updated guidance from Compaq.
Revenue surged 14 percent from the previous quarter to $8 billion, but was still 26 percent below a year ago, when Compaq posted a loss of $672 million.
Looking ahead, Capellas predicted first quarter revenues would dip to $7.6 billion, representing a traditional drop in sales after the holiday season. But the chief executive said he was optimistic that buying by corporate customers would pick up in about six months.
“We did see some strengthening in the IT market in Q4, and pent up demand should drive a stronger recovery in the second half of the year,” Capellas said.
The last 12 months proved some of the most troubling in Compaqs history as it struggled to weather an industry wide drop in PC and server sales largely blamed on a faltering U.S. economy, and saw product prices further undermined by a continuing price war with Dell Computer Corp.
“Its no exaggeration to say that 2001 was a difficult year – a year of momentous change in our world, our industry and our company,” Capellas said.
For the full year, Compaqs revenue totaled $33.6 billion dollars, down from $42.2 billion dollars in 2000. Earnings totaled 15 cents per share, compared to 96 cents in 2000.
While fourth quarter sales were down significantly compared to last year, Capellas stressed that compared to the previous quarter, the company saw its enterprise sales rise 15 percent and services business climb 8 percent. In addition, it saw sales strengthen overseas, with revenues up 22 percent from the third quarter. Sales in North America edged up 4 percent.
“We still have more work to do, but our results represent improvement across the board,” Capellas said.