Compaq Predicts Brighter Q4

Compaq Computer Corp. said Monday morning it now expects to post a fourth quarter profit as opposed to its previously announced guidance calling for a Q4 loss of three cents per share. The nation’s number two computer manufacturer behind Dell, Compaq now expects revenue in the quarter to exceed $8 million. Previous guidance and consensus estimates for the fourth quarter were revenues of $7.6 to $7.8 billion.

In early Monday trading, Compaq shares were up 59 cents, or 5.2 percent, at $11.98. The company will announce full results for the quarter and fiscal year 2001 on Jan. 16.

The revised estimates came as welcome news for the Houston computer maker after weeks of negative stories that members of the Hewlett and Packard families plan to oppose the proposed merger of Compaq and the Hewlett-Packard Co.

Despite the family opposition, Compaq chief Michael D. Capellas said shortly before Christmas that he continues to unequivocally support the deal.

“I absolutely support the merger,” Capellas told a crowd gathered for his keynote presentation at the December Internet World Fall 2001 at the Jacob K. Javits Center in New York City.

While the keynote format did not allow for a question and answer period, Capellas tackled the issue himself in a Q&A session in which he both asked the questions and provided the answers.

Capellas’ and Compaq’s commitment to the merger were brought into question following the public release of a letter Capellas e-mailed to employees on Dec. 7, after the Packard Foundation made its stance public. The letter briefly outlined Compaq’s strategy for going forward, with or without HP.

The letter included choice snippets such as, “Our responsibility is to maintain a pragmatic view of our business and a clear focus on the future.”

But Capellas, noting that he would not send an e-mail to 67,000 employees and expect to keep it secret, said that while he continues to feel the merger is still the best solution for both Compaq and HP, he and Compaq have a duty to the company, its shareholders and its employees to prepare for whatever may come down the pike.

In more complete context, the letter Capellas sent to Compaq’s employees makes that clear.

“Although we are disappointed,” the letter said of the Packard Foundation’s decision, “we continue to believe that the merger is in the best interests of shareholders, employees, customers and partners. Our responsibility is to maintain a pragmatic view of our business and a clear focus on the future.”

The letter went on to explain that Compaq’s three objectives in the merger were to:

;

; and

.

“But this isn’t just about the merger,” he said in the letter. “This was also the direction we set in June, when I outlined our new strategy and established an aggressive 180-day execution plan. That strategy has not changed. We believe the merger will help accelerate the strategies of both companies. But regardless of the circumstances — whether we are part of the new HP or a standalone company — I am confident in our ability to achieve these objectives.”

Reiterating that point in his December keynote, Capellas said, “The merger still absolutely makes sense. We had a very clear strategy [prior to the merger], and we have taken steps to continue to execute that.”

Some of those steps include huge customer wins in the past few months, including General Motors, the U.S. Postal Service, ABN-AMRO, American Express, GE Aircraft Engines, Sabre, Optus, Bank of America and Cardinal Health. Capellas indicated that further customer gains would be made public in coming weeks.