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Compaq Posts Profit Despite Low Tech Spending

By Reuters
Published | Updated

HOUSTON – Compaq Computer Corp. (CPQ), the No. 2 personal computer maker, Thursday posted a first-quarter profit that was hampered by lower technology spending, but the results were better than the loss a year ago, when it took an accounting charge.

The company said it earned $44 million, or 3 cents per share, compared with a loss of $222 million, or 8 cents per share in the year-earlier quarter, including the effects of an accounting change.

Daniel Kunstler, an analyst at JP Morgan, said that the quarter was not a surprise. "You've got essentially hardware a little bit below breakeven, which is not bad, but then the entire profitability is really due to services," Kunstler said.

Compaq said it earned 4 cents per share for the period, excluding merger costs related to the planned acquisition by Hewlett-Packard Co. in the largest-ever technology deal, worth $19.5 billion in stock.

The results were in line with Compaq's announcement on April 8 that it expected to meet or beat analysts' average estimate of 1 cent per share, according to Thomson Financial/First Call.

First-quarter revenues fell to $7.73 billion from $9.18 billion in the year-earlier period, also in line with company guidance.

Compaq, based in Houston, lost its spot as the No. 1 personal computer maker in 2001 to Dell Computer Corp. , which has used its direct sales model to start a price war and steal market share.

This could be Compaq's last quarter as an independent company, if Hewlett-Packard is successful in its quest.

Hewlett-Packard on Wednesday said it won its March 19 shareholder vote on the deal, which Walter Hewlett, the dissident board member and the son of a founder, is contesting. Hewlett-Packard added that it hoped to close the deal in a week-and-a-half.

Next week, Walter Hewlett's lawsuit against the company goes to trial in a Wilmington, Delaware business court. He has claimed company improprieties in the vote.

Compaq shares gained 1.3 percent, or 14 cents, to close at $10.82 on the New York Stock Exchange.