Compaq hit by slow hardware sales

Compaq has become the latest vendor to blame the depressed low-end hardware market for its profit warning yesterday.

The hardware manufacturer said sales for the fourth quarter would be between eight to 10 per cent below previous expectations.

Revenue is now expected to be between $11.2bn and $11.4bn, while earnings from operations, excluding one-time charges, will be between 28 and 30 cents per share. Wall Street analysts had been expecting earning per share of 36 cents.

Compaq executives blamed the $9.5m shortfall on sluggish sales in the US consumer, small and medium-sized business and dotcom sectors.

Although earnings from operations will be lower than previously predicted, they will be 50 per cent higher than those of the fourth quarter 1999.Michael Capellas, Compaq chairman and chief executive, said: "We are taking the action required to adjust to changing market conditions. Channel inventories are currently at planned levels of four weeks for commercial products and just under seven weeks for consumer products. We will continue to balance growth and profitability as well as tightly manage expenses."

Compaq said it expects the second half of next year to be stronger than the first half. It predicts revenue growth of 10 per cent for 2001, while earnings per share will be up by 25 per cent from the revised estimates for fiscal 2000.

The company's announcement yesterday is the latest in a line of similar warnings from hardware manufacturers, which all blame slow end-of-year sales in the low-end market.

Last week Gateway and Apple said sales of consumer desktops had slowed during the fourth quarter, but Intel said shipments of servers were "brisk". However, Compaq said yesterday that sales of low-end servers are also sluggish.

Compaq is expected to release full results for its fourth quarter, which ends on 31 December, on 25 January.