Compaq To Cut 5K Jobs, Expects Low Q1 Earnings

By Jeff Malester On Apr 2 2001 - 6:00am

HOUSTON -Faced with continued weakness in the U.S. economy and resultant pricing pressures, PC maker Compaq Computer said it will cut 5,000 jobs, or about 7 percent of its work force worldwide.

At the same time, Compaq said fiscal first-quarter 2001 earnings would be about one-third lower than expected. Sales are expected to be between $9 billion and $9.2 billion, about 4 percent lower than the same three months in fiscal 2000 and less than the $9.6 billion predicted by Compaq two months ago.

The company is taking a number of management actions to bolster its business, including merging its commercial and consumer PC operations into a single unit called the Access Business Group. The work force reduction will result primarily from the Access merger, as well as previously announced supply chain changes and corporate marketing consolidation.

Once fully implemented, Compaq said these steps should result in annualized savings of $500 million to $600 million.

The company also announced it is taking a restructuring charge of $125 million to $150 million in the first quarter of fiscal 2001. It also will recognize about a $120 million one-time gain in the same quarter, primarily driven by the sale of a joint venture business.

"Clearly, we are operating in a challenging environment," said chairman/CEO Michael Capellas. "The result of the actions we are taking, coupled with our strong array of new products and solutions, will enable significant improvements in our business model and position us well in the mid- and long-term."