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PeoplePC shows a rebound

The company posts a loss dramatically smaller than Wall Street expected, in part because of its deal with Vivendi Universal.

PeoplePC, known for working with corporations to provide computers as a fringe benefit to workers, reported a quarterly loss Wednesday dramatically smaller than Wall Street expected.

The company was buoyed by its deal late last year to offer computers and Internet access to Vivendi Universal employees.

Excluding amortization and goodwill charges, PeoplePC reported a loss of $30.4 million, or 28 cents per share, on revenue of $37.3 million in the first quarter. It posted a loss of $25.6 million, or 29 cents per share, on revenue of $7.9 million in the same quarter a year ago.

A consensus of analysts expected the company to lose 47 cents per share for the first quarter, according to First Call.

Including the charges, the San Francisco company reported a loss of $36.2 million, or 33 cents per share. The company also reported $67.2 million in long-term sales, which it recorded as deferred revenue.

"You only beat estimates like (we did) when you have a model that works," CEO Nick Grouf said in an interview. "As this market gyration continues to shake out, we expect to be the only one left standing, and we'll have a lot less competition."

The company credited its better-than-expected results to early revenue from its first major European program: a deal with French media and communications company Vivendi. PeoplePC also credited its revenue boost to upgrades and the sales of PC peripherals to new members.

Over 85 percent of new subscribers upgraded their PCs during the quarter, which is up from the 50 percent who did so in the previous quarter.

During the first quarter, People PC hooked up 44,000 of Vivendi's French employees. Vivendi, which has 260,000 employees worldwide, signed the deal with PeoplePC at the end of 2000.

PeoplePC inked two deals in the first quarter with energy company Cinergy and Weber State University, which gives PeoplePC a pool of 117,500 potential members to sign up.

The company has similar deals with Ford Motor and Delta Air Lines.

PeoplePC sells computers and Internet access for a monthly fee over three years.

In total, PeoplePC had 496,000 subscribers at the end of the first quarter, compared with 430,000 subscribers at the end of 2000.

Michael Glogowsky, the interim chief financial officer, said during a conference call that the company expects 50,000 new members this quarter and a total of 800,000 subscribers by the end of the year.

The company expects to sign up a majority of the new members in the second half because the second quarter has traditionally been slow for the PC industry. Grouf said PeoplePC has aggressive plans for the second half to drive membership but declined to offer specifics.