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Compaq’s Profit Drops for Quarter, Rises for Year

February 1, 1990

HOUSTON (AP) _ Compaq Computer Corp., which has delayed distribution of its latest desktop computer because of a faulty chip, said Thursday its quarterly profit slipped for only the second time in its eight-year history.

For the three-month period ended Dec. 31, the Houston-based maker of personal computers had earnings of $79.05 million, or $1.84 per share, down 14 percent from $91.91 million, or $2.18 per share, during the same quarter in 1988.

Sales totaled $788.14 million, up 18 percent from $667.67 million in 1988′s fourth quarter.

Compaq, which took just four years to become a Fortune 500 company, last posted a year-to-year decline in quarterly earnings in the third quarter of 1984, when profits were $1.8 million compared with $3.8 million in the 1983 period.

Compaq said in November it expected its fourth-quarter profit to be off because it detected a fault in an Intel Corp. chip, causing delays in distributing new products, said Mike Swavely, president of the company’s North American division.

Engineers found a way to work with the chips several months ago, but Intel contacted Compaq last week saying there was another problem.

The company said it had planned to ship its new Deskpro 486-25 computer Feb. 1, but the date was set back due to the new trouble. Swavely said the model should be distributed during the current quarter.

Compaq also blamed the profit drop to a near-doubling of fourth-quarter research and development costs to $38 million, increased costs associated with new-product introductions, and to a softening U.S. market for personal computers.

For all of 1989, Compaq reported earnings of $333.3 million, or $7.77 per share, up 31 percent from $255.2 million, or $6.30 per share, in 1988. Sales totaled $2.87 billion, up 39 percent from the $2.1 billion in 1988.

President Rod Canion said the introduction of new products contributed to the company’s success in 1989.

Besides the delayed DeskPro 486-25, the company introduced two new desktop computers and notebook-sized laptop computers.

Sales outside North America contributed 46 percent of Compaq’s revenue for 1989, Canion said, helping compensate for slowing domestic sales of personal computers. To support growing international sales, two new subsidiaries were opened in Norway and Denmark.

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