Compaq Is Latest to Sound Sales and Profit Warning

Compaq Computer Corp., the world’s leading maker of personal computers, said Tuesday that sales and profit will miss its forecasts in the fourth quarter and 2001 because of weak PC sales to consumers and small businesses.

Fourth-quarter sales will be $11.2 billion to $11.4 billion, missing targets by 8% to 10%, Chief Executive Michael Capellas said in a conference call. Profit before charges will be 28 cents to 30 cents a share, less than the 36-cent average estimate of analysts polled by First Call/Thomson Financial.

Compaq is the latest PC-related company to cut expectations. Evidence of sluggish sales already had piled up with warnings from No. 1 chip maker Intel Corp., Apple Computer Inc., Gateway Inc. and others. The price of memory chips, another indicator of PC demand, has fallen by half in the last three months.

“It’s kind of like everyone is going to confession with these warnings,” said Louis Kokernak, senior equity strategist at Martin Capital Advisors, which owns Compaq shares.

Compaq slipped as low as $19.50 in after-hours trading following the announcement, then recovered to $20.74. They had closed at $20.77, up 53 cents, on the New York Stock Exchange. The Houston-based company’s stock has fallen 23% this year.

Compaq expects sales next year to rise about 10%, with the second half of the year stronger than the first, Capellas said. Earnings per share will increase 25%, he said.

After reporting that third-quarter profit more than quadrupled, Capellas had predicted in October that fourth-quarter sales would climb 18% to about $12.4 billion and earnings would rise more than 40% next year.

Compaq had net income of $332 million, or 19 cents a share, on sales of $10.5 billion in last year’s fourth quarter.

The announcement Tuesday is the first stumble for Capellas, who was picked to succeed Eckhard Pfeiffer as Compaq’s chief executive in July 1999. Pfeiffer was ousted by Compaq’s board after several lackluster quarters.

Under Capellas, Compaq has focused on more profitable products, such as servers that power networks and Web sites, as well as devices that link to the Internet. It has lured corporate customers away from rivals such as Dell Computer Corp.

Problems developed in early December, Capellas said, as a slowdown in the consumer market spread to small-business customers and Internet companies. December typically accounts for about 45% of Compaq’s fourth-quarter sales. “October looked good,” Capellas said Tuesday. “Through November, we were still on track.”