Quarter’s Loss May Push Control Data Into the Red for ’88
Control Data Corp. reported Monday that it may post a fourth-quarter loss that could wipe out its profit for the year.
The Minneapolis-based computer hardware and services company said it expected a fourth-quarter loss nearly equal to its $14.5-million profit for the first nine months of 1988, yielding about break-even earnings for the year.
It blamed the change in its outlook on chip problems that have delayed shipments of new mainframe computers, as well as on continued weakness in its computer, government systems and semiconductor businesses.
About half the loss will come from a reversal of tax credits taken by Control Data earlier in the year, spokesman Frank Ryan said. The credits can only be used if the company is operating profitably, he said.
The deficit is a setback to the company’s drive to rebuild earnings after losses totaling $832 million in 1985 and 1986. It posted a modest profit of $19.3 million last year and had planned on strong gains this year.
“They’ve taken two steps backward after one step forward,” said Michael Geran, a computer analyst with Nikko Securities International in New York.
But Ryan said the company was still confident that its turnaround would continue, fueled by its Imprimis disk drive unit and business services group, which includes computerized lottery systems, Arbitron radio ratings and Sami/Burke marketing information.
The outlook for Control Data’s computer group deteriorated unexpectedly during the past few days, with soft demand exacerbated by delays in shipping a key new model, the Cyber 960 mainframe.
Rollout of the new mainframe was crippled by the failure of an outside supplier to provide a crucial logic chip. Control Data had hoped volume shipments of the model during the quarter would contribute significantly to earnings.
Ryan said the supply problem had been solved and the Cyber 960 was being built.
Timing Cited
But he said the government systems business continues to suffer from a downturn in U.S. defense spending. And Ryan said the company’s VTC Inc. unit is still struggling to begin production of a new line of computer chips, which analysts consider crucial to the unit’s future.
The company said it had been planning on a very high volume of orders, shipments and revenue in the fourth quarter.
“The risk inherent in this plan was compounded by the compression in the production and shipment schedule for the Cyber 960s. In this regard, the bulk of the change is due to timing as opposed to lost business,” Robert Price, the company’s chairman, said in the statement.
On New York Stock Exchange trading Control Data’s stock fell $1.50 to $17.75. But analysts said they did not expect a big selloff, noting that investors have long shunned the company.
Takeover Rumors
“The stock has been trading on takeover rumors, not earnings,” said Sanford C. Bernstein analyst Don Young.
