Compaq To Show Profit Amid Merger Concerns

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Even while its merger with Hewlett-Packard remains in uncertain territory, Compaq said last week it would exceed its fourth-quarter estimates and post a profit for the period ended Dec. 31.

Compaq said revenue for the fourth quarter would exceed $8 billion and it would post an unspecified profit. Previously, the company had estimated fourth-quarter sales at $7.6 billion to $7.8 billion and a loss of 3 cents per share.

Compaq executives declined to comment further on the revised fourth-quarter estimates. The company is scheduled to report both its fourth-quarter and year-end results Jan. 16.

The news last Monday immediately sent Compaq shares up 59 cents, or 5.2 percent, to $11.98. But by Thursday, Compaq shares were trading at $10.87.

Some solution providers said most of the anticipated profit was likely tied to cost-cutting measures rather than any dramatic uptick in business. Midway through the quarter, they noted, Compaq told partners it would cut market development fund (MDF) rebates between 10 and 50 basis points for the quarter ending Dec. 31. The change was retroactive to Oct. 1.

But other solution providers said Compaq's anticipated profit could be attributed to head-count reductions. "It has to be because they slashed head count," said John DeRocker, senior vice president of sales and marketing at Nexus Information Systems, Plymouth, Minn. "I don't think that volumes have really increased, and they didn't cut enough marketing funds to all of a sudden say, 'This where we made up our money.' Head count is a direct capital cost, and they laid off so many people that I'm sure they can show a profit."

Meanwhile, solution providers are growing increasingly weary of the prolonged proxy fight between dissident HP director Walter Hewlett and the rest of the HP board over the proposed merger between the two companies.

"As this deal drags on and on, it creates a lot of confusion in the market, and I just wish it would end one way or the other," said Todd Barrett, networking sales manager at CPU Sales and Service, a Waltham, Mass., solution provider.

The final proxy statement from HP regarding the merger is expected by the end of January, and a shareholder vote could come as early as next month.

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