Compaq cuts jobs and sales forecast

Compaq: Pushed off the top spot by Dell

Compaq Computer has lowered its sales forecast and said it will cut 4,000 more jobs because of worsening economic conditions in Europe.

The announcement came weeks after the computer giant signalled its retreat from the front line of the PC sales war with plans for a refocusing of its business on software and computer services.

In a statement, Compaq said second-quarter revenue would be about $8.4bn, down 9% from the previous quarter and 7% from previous forecasts.

Chairman and chief executive Michael Capellas said: "It is now clear that the economic slowdown is spreading overseas and we will therefore move more swiftly and go even deeper in our structural cost reduction programmes."

'Aggressive action'

Compaq said it was taking an additional restructuring charge of about $490m in the second quarter, mainly to pay for cutting about 4,000 more jobs.

It said it would now cut a total of about 8,500 positions this year, saving about $900m a year.

There was no word immediately on where precisely the fresh job cuts would come.

Compaq's European headquarters is in Munich, Germany but the company also has substantial operations in the UK.

Earlier this year, 700 job losses were announced at a Compaq plant in Scotland.

Last month, Mr Capellas had warned staff in a memo it was "absolutely necessary" to reduce costs if profits were to be increased.

"We are committed to taking aggressive actions during this period of slow demand to make permanent improvements in our business model," he added on Tuesday.

Expectations for second-quarter operating profit were slashed 20% to four cents a share.

Losing out to Dell

Compaq has been under heavy pressure in recent months, partly because of a sharp slowdown in PC sales in the United States.

The Houston, Texas-based company has also lost its place as the world's number one PC maker to Dell Computer.

In April, Compaq announced plans to shed more than 9,000 full and part-time jobs and reduce structural costs by $500m-600m annually.

In the June memo, Mr Capellas had said he wanted to go beyond this.

"Our goal is to reduce structural costs by $200m per quarter," he had said. "This includes a 20% reduction in indirect manufacturing costs by the end of the year."

Shares halted

Trading in Compaq shares was halted just before Tuesday's announcement.

In electronic trading after the market had closed, the shares were quoted at $14, up from the $13.76 level at which they had earlier been suspended.

However, analysts were downbeat.

"I don't think there is a lot positive to take away from this announcement," said David Bailey, an analyst at Gerard Klauer Mattison & Co.

"It indicates that Compaq's revenues continue to deteriorate, that they are undertaking yet another restructuring which, while reducing expenses, could hamper some of their initiatives to refocus the company."

Compaq is due to report second-quarter results on 25 July.