Compaq says it's back in black

Compaq Computer will turn an operating profit for its fourth quarter, officials said.
Written by Margaret Kane, Contributor
Compaq Computer handed the tech sector some unexpected good news Monday, saying it would turn an operating profit for its fourth quarter.

Compaq said that it would report a profit for the quarter, with sales coming in at more than US$8 billion. The company previously said it expected to report a US$0.03 per-share loss and revenue between US$7.6 billion and US$7.8 billion.

The company didn't elaborate on whether the profit includes or excludes charges, citing its earnings quiet period. First Call was expecting Compaq to report a loss of US$0.03 a share excluding one-time items.

Although Compaq's better-than-expected revenue target will still be down 29 percent from a year ago, investors pushed shares up US$0.26 to US$11.65.

"These results represent strong execution and Compaq's solid momentum in the marketplace," CEO Michael Capellas said in a statement.

Compaq's outlook may indicate that the company can stay focused despite the turmoil surrounding its proposed merger with Hewlett-Packard. Compaq's proposed merger with HP is being fought by members of the Hewlett and Packard families, and there were concerns that all the upheaval would disrupt business.

Compaq has made efforts to show it can function as a standalone company even if the HP deal unravels.

The company has signed a number of big deals amid the turmoil, including contracts with Ericsson, American Express, General Motors and General Electric.

Although many analysts weren't impressed with Compaq's small profit during the peak PC selling season, the company's announcement may help confirm Wall Street's view that the PC sector is rebounding. After what was a dismal year for PC sales, analysts have become a bit more optimistic.

Salomon Smith Barney analyst Richard Gardner said Monday that U.S. retail PC sales rose 30 percent from the third quarter to the fourth quarter, better than the typical 15 percent to 20 percent jump. Part of that was due to the fact that September's sales were abnormally low, however, and shipments during the second half of the year were only about 7 percent higher than in the first half, he said--about half the normal rate.

Still, Gardner said fourth-quarter demand "turned out better than expected."

"We believe Compaq not only had a good (fourth quarter) but that changes made in 2001 will pay dividends in 2002 including lower expense structure, lower inventories and more direct sales," wrote Lehman Brothers analyst Dan Niles. He added that fourth- quarter sales would probably be better than expected because of strong sales in Europe, Compaq's commercial business and better consumer demand.

Niles upgraded Compaq from a "buy" to a "strong buy" Monday.

Compaq will formally announce results for the quarter and for the fiscal year on Jan. 16.

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