Compaq Computer Corp. Monday reported its operating profit fell in the first quarter, as it contended with a slowdown in PC sales and aggressive pricing by its rivals that saw it lose its top ranking to Dell Computer Corp.

The second quarter would continue to be tough, Chairman and Chief Executive Michael Capellas said in a statement, but the company would make improvements to the business to bring better results in the second half of the year.

"While we believe the second quarter will continue to be challenging, it also provides an opportunity to make significant improvements in our business model," he said.

Compaq reported first quarter profit of $200 million, or 12 cents per share, excluding a larger-than-expected one-time charge of $249 million, and net investment income of $75 million and related tax effects. As recently as March 15, Compaq was expecting restructuring charges to total $125 million to $150 million. First quarter earnings fell from net income of $296 million, or 17 cents per share a year ago.

That hit the low end of analysts' expectations, which ranged from 12 cents to 15 cents per share, with a consensus figure of 13 cents. Those estimates were already lowered when the company scaled back its outlook last month, saying investors should expect profits to be flat with last year.

"This was somewhat disappointing, but not surprising," Gerard Klauer Mattison analyst David Bailey said. "They lost (money in) their PC group, which is what we expected, and that's because of Dell. Dell's set the stage to set prices aggressively."

Sales fell to $9.2 billion from $9.5 billion a year ago, meeting analysts' hopes for about $9.14 billion in sales.

"We are aggressively focusing on five key improvement initiatives including additional reductions in our structural costs, permanent inventory reductions, aggressive pricing, increased investments in innovation and broadening our global services," he said.

"We are confident that these actions will strongly position us for improved results in the second half of this year and beyond," he added.

Consensus analyst per share estimates currently stand at 17 cents for the second quarter and 79 cents for full-year 2001, according to Thomson Financial/First call.

The Houston-based company lost the No. 1 PC maker position to Dell Computer Corp. in the first quarter, according to two top market research firms.

The report came after the close of regular trade. The stock closed down 86 cents, or 4 percent, to $20.65 on the New York Stock Exchange.

The stock fell 63 cents in after hours trade on Instinet, to $20.02.

Compaq has outperformed other technology companies in the American Stock Exchange hardware index by nearly 15 percent since the beginning of 2000. It has underperformed the S&P 500 index by nearly 20 percent in the same timeframe.

"I will assume the stock will trade in this (current) range," said Bailey.