Compaq issues warning, cuts 5,000 jobs

The cuts come as a result of "continued overall weakness in the US economy," said Michael Capellas, Compaq chairman and chief executive officer during a conference call. Though the consumer and business desktop PC market "has been hit the hardest," server and small business sales have dropped off as well, Capellas said. He did note, however, that Compaq continues to do well in the storage and Unix markets.

Compaq lowered its earnings outlook for its first fiscal quarter 2001 ending 31 March to a range of $US0.12 to $US0.14 per share, about even with the first fiscal quarter of 2000. Revenue is estimated to be between $US9.0 and $US9.2 billion, about 4 per cent below the same quarter last year. The prior consensus financial estimates of analysts for Compaq pegged the first quarter at $US0.18 per share on revenue of $US9.6 billion.

The company said it plans to eliminate about 5,000 positions, or 7 per cent of its workforce worldwide, primarily from the new Access unit formed by the consolidation of its consumer and commercial product groups, as well as jobs from the supply chain and marketing organisation. The company expects to save between $US500 million and $US600 million per year through the moves, Capellas said.

Compaq said it will take a restructuring charge of $US125 million to $US150 million in the first quarter resulting from the consolidation, while recognising about $US120 million from a one-time gain primarily from the sale of the company's investment in the Road Runner joint venture. The restructuring will be implemented in two phases, the first taking place over the next four to six weeks, the second over the balance of the year, Capellas said.

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