Compaq Earnings Fall More Than 80%Compaq Earnings Fall More Than 80%

Looking for a measure of just how bad things are for technology vendors? Compaq Wednesday reported that second-quarter earnings fell 81% to $67 million, yet CEO Michael Capellas says he's "pleased" with the company's performance. Talk about reduced expectations.

A year ago, Compaq posted second-quarter earnings of $388 million. Including a $493 million restructuring charge, Compaq actually posted a second-quarter loss of $279 million. Per-share earnings for the period--excluding the charge--were 4 cents, compared with 22 cents last year. Second-quarter revenue declined 17% year over year to $8.5 billion.

Sales of enterprise systems, including servers and storage devices, fell 21%. PC sales fell 22%. Compaq said weakness in Europe and other overseas markets means a turnaround is not in the offing anytime soon. As a result, Compaq said third-quarter revenue would likely miss earlier forecasts.

Nonetheless, Capellas, in a statement, said he's "pleased with the company's solid execution in this challenging environment." On the upside, Compaq's revenue from its Global Services arm increased 7% in the second quarter compared with last year, and it managed to reduce inventory by almost $1 billion in the first six months of 2001.

Observers say Compaq needs to lessen its dependence on the price-battered PC market for revenue and boost sales of high-margin products like services. "They need to be more like IBM, and that is the direction they seem to be taking," says Technology Business Research analyst Lindy Lesperance. Last month, Compaq said it would spend $500 million over the next several years to acquire IT services companies serving a number of vertical industries.