Financial: Compaq Expects Loss in Second Quarter; Company Announces Strategic Realignment to Improve Execution; Expects Substantial Q3 Restructuring Charge - Company Financial Information

Edge: Work-Group Computing Report, June 21, 1999

Compaq Computer Corporation Thursday announced that it expects a loss for the second quarter of up to $.15 per share. "The operational issues that affected Compaq in the first quarter continued to influence our business this quarter," said Benjamin M. Rosen, Chairman and acting Chief Executive Officer.

"While we have the best line-up of products, solutions and services in the industry we have not performed to our potential. Pricing pressures in the PC segment, inadequate revenue growth, and a non-competitive cost structure are the contributing factors to our expected shortfall." For the second quarter, Rosen said that both revenues and gross margins are expected to be flat to down sequentially from the first quarter. Operating expenses will increase from the first quarter as a result of incremental goodwill amortization from Compaq's recent Internet acquisitions and the expenditures that are needed to support the Company's longer-term goals. Compaq also announced a plan for the major realignment of its business structure to enhance the execution of its strategy and fully leverage the Company's vast capabilities. "In the two months since the change of management at the company, we have taken a deep look into the strengths and challenges of Compaq," said Rosen. "We have determined that significant structural changes are required to enable this company to realize its enormous potential and secure its position as the preferred information technology partner for global customers. "The changes we are making today are aimed squarely at the objectives identified at the outset: to improve execution of our strategy, speed decision-making, get closer to our customers and accelerate growth. This also will allow us to reduce costs and have a more concentrated focus on investment in growth," said Rosen. Rosen outlined several major aspects of the realignment, with the most fundamental change being the establishment of three global business groups - Enterprise Solutions and Services, Personal Computer, and Consumer - each with a separate, market-driven, profit-and-loss accountability. The Enterprise Solutions and Services Group, headed by Enrico Pesatori, Senior Vice President and Group General Manager, is being formed through the integration of the Company's Enterprise Computing Group and Compaq Services. It will be responsible for the global delivery of NonStop eBusiness solutions and the products and services that make up those solutions. The Personal Computer Group will continue to be led by Mike Winkler, Senior Vice President and Group General Manager. The Consumer Group will continue to be headed by Mike Larson, Senior Vice President and Group General Manager. Additional elements of the realignment include the: * Creation of a global Sales and Marketing group - led by Peter Blackmore, Senior Vice President, Sales and Marketing - with responsibility for sales processes across all business group lines; * Establishment of a dedicated organization to manage all of Compaq's eCommerce activities; * Continued building of a world-class supply chain with end-to-end alignment from demand management to delivery; * Creation of a customer advocacy organization, combining Compaq's quality and customer satisfaction organization with its customer advocacy initiatives. "The new structure will provide clear go-to-market objectives for each of three global business groups. Each group will have end-to-end alignment focused on meeting customer needs, with accountability for customer satisfaction and cost structures appropriate to their target markets," said Michael Capellas, acting Chief Operating Officer. Capellas also said that associated with the realignment, Compaq expects to take a substantial restructuring charge in the third quarter. Once fully executed, the realignment plan is designed to eliminate $2 billion in ongoing operating costs. "The actions we are taking today are designed to take full advantage of the breadth and depth of Compaq's capabilities to restore the Company's growth and financial performance," said Rosen. These statements regarding expected results are based on forecast information and are subject to change and review. The Company expects to announce its second quarter results on July 28, 1999. FMI: http://www.compaq.com.