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Friday, 25 January, 2002, 22:41 GMT
Compaq raises profits outlook
Compaq chief executive Michael Capellas
Mr Capellas defended the planned merger with Hewlett-Packard
The US computer maker Compaq has increased its earnings forecast for the coming year.

The company said it would earn 32 cents a share during 2002, against analyst forecasts of about 25 cents.

The news came as Compaq's chief executive Michael Capellas said he was optimistic of a recovery during the second half of the year.

He also defended the proposed merger between Compaq and Hewlett-Packard (H-P).

The planned tie-up has come under fire from investors and members of H-P's founding families.

'Pent-up' PC demand

Speaking to investors and analysts in New York, Mr Capellas said he thought a recovery in the US economy would be seen during the second half of the year, which would boost corporate spending on IT.

He also said he saw "pent-up demand in the PC life cycle".

Despite his upbeat remarks, he said he still saw the overall PC market contracting by about 3% over the coming year.

Last year global PC sales fell for the first time since 1985, and the downturn has hit all the major computer makers.

Dell has launched an aggressive price-cutting strategy to win market share, while Compaq and Hewlett-Packard are planning to merge.

Meanwhile Gateway has slashed jobs and closed all of its operations outside of the US. On Thursday it said it was cutting another 2,250 jobs.

Deal defended

At the meeting Mr Capellas also defended the proposed merger between Compaq and Hewlett-Packard, saying it made good business sense.

Since the deal was announced last year it has been criticised by investors, who are sceptical that the tie-up would lead to any real benefits.

The Packard Family Foundation, the single largest shareholder in H-P, has already said it will vote against the merger.

And earlier this week David Packard, the son of H-P's co-founder, took out an advertisement in the Wall Street Journal criticising the deal.

But Mr Capellas said he was confident the deal would be backed.

"Both the retail investor and institutional investor are very smart people and understand this business, and they will weigh in."

At the close of trade in New York on Friday, Compaq shares were down 10 cents to $11.95, while Hewlett-Packard shares were 16 cents lower at $22.47.

See also:

16 Jan 02 | Business
Computer makers back in the black
07 Jan 02 | Business
Compaq turns loss to profit
11 Dec 01 | Business
Compaq mulls future on its own
14 Nov 01 | Business
Hewlett-Packard battles for Compaq
05 Sep 01 | Business
Jobs slashed in biggest PC merger
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