Compaq yesterday announced a second-quarter loss of $US184 million as a result of PC pricing pressures, inadequate revenue growth and an increase in expenses. In addition, the company announced that it will reduce its workforce by 6000 to 8000 employees and take a restructuring charge of $US700 million to $US900 million in the third quarter.
Worldwide sales for the quarter, which ended June 30, were $US9.4 billion and total revenues for the quarter grew by 17 per cent, the company said.
A year ago, the company reported earnings of $US32 million for the second quarter.
Michael Capellas, Compaq's newly-installed president and chief executive officer, said the job cuts were necessary to get the company back on track financially.
"We are aggressively taking the appropriate actions to restore the company's growth and financial performance," Capellas said. "The realignment of the company is fully underway, our management team is basically in place and we already offer the powerful solutions and range of products customers needed to maximise Internet benefits through Compaq's NonStop eBusiness capabilities."
The realignment will help the company institute a strategy that includes timely product delivery and cost reduction, he said.
The chief factors driving the losses were inadequate revenue growth, a decline in gross margins, and increasing operating expenses, Capellas added.
Intense price competition in the commercial PC market, an increase in warranty expenses associated with several PC products no longer shipping, costs from discontinued programs and penalties related to some long-term purchasing contracts resulted in a drop in the total gross margin from 24.7 per cent in the first quarter to 20.5 per cent in the second quarter, the company said.
Operating expenses increased to $US2.2 billion in the second quarter over $US1.9 billion in the first quarter. Factors contributing to the rising expenses included completion of year 2000 safeguards, increased spending on promotional events and advertising, costs associated with discontinued business ventures, AltaVista goodwill amortisation, and incremental accounts receivable allowances.