Compaq Computer said it expected to cut between 6,000 and 8,000 jobs before the end of the year, at the same time as it announced slightly smaller than expected second quarter losses.
The news followed warnings by the PC maker last month 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 the First Call analysts’ consensus had expected earnings of $0.20 per share, it revised this down to losses of $260 million or $0.15 per share as a result.
And Michael Capellas, who was named as Compaq’s new president and chief executive last week, duly attributed the losses to "inadequate revenue growth, a decline in gross margins and an increase in operating expenses."
Gross margin fell to 20.5 per cent in the second quarter from 24.7 percent in the first, while operating expenses rose to $2.2 billion in the second quarter from $1.9 billion.
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."
As a result, the supplier posted net losses of $184 million or $0.11 compared with a year ago loss of $3.6 billion, which included charges for its acquisition of Digital Equipment. Revenues rose to $9.4 billion from $5.8 billion in the same period last year.
But Compaq also said that it expected to take a restructuring charge in its third quarter of between $700-$900 million, after cutting 6,000-8,000 staff and closing some facilities, although locations have not yet been determined.
Capellas said the restructuring would ensure it maintained its lead in delivering next generation products, would simplify its distribution strategy and reduce costs. This would "result in a return to profitable growth," he promised.
He added that enterprise related revenues increased 11 percent year on year, with strong growth in the standard server and storage sectors. North American sales rose 32 per cent, but grew by a "disappointing 6 per cent in Europe and Asia."
According to market research firm, Dataquest, Compaq shipped about 25.3 million desktops and laptops worldwide compared with 20 million in the same quarter a year ago. It added that the firm topped the list of global and US markets with 13.8 per cent of the global market.
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