Compaq (CPQ)

[JoeLong]

Compaq Says It Will Post (Q4) Profit, Not Loss

HOUSTON (Reuters) - Compaq Computer Corp. (NYSE:CPQ - news) on Monday said it expects to post a profit in the fourth quarter, not a loss, on revenue of more than $8 billion, in a sign that the struggling personal computer industry had a better-than-expected quarter.

The results are above the previous forecast from Compaq, the No. 2 personal computer maker, for revenue of $7.6 billion to $7.8 billion and a loss of 3 cents a share.

Compaq's earnings surprise is the second positive sign for the technology industry in the past week. Semiconductor stocks soared last week after the release of industry data showing improved sales in the fall, making a recovery more likely.

The news also comes at a time when it and competitor Hewlett-Packard Co. (NYSE:HWP - news) are trying to convince shareholders that their proposed merger is a good one. Investors have had doubts about that merger since it was announced on Sept. 4.

In the late autumn, members of both the Hewlett and Packard families said they would vote their combined 18 percent stake against the merger.

``These results represent strong execution and Compaq's solid momentum in the marketplace,'' Compaq Chief Executive Officer Michael Capellas said in a statement.

Earlier on Monday, Lehman Brothers analyst Dan Niles said Compaq had a good fourth quarter because both demand from consumers and corporations was strong, despite concerns that the HP merger plan would hurt corporate sales.

``The merger uncertainty being a big concern hasn't seemed to affect their corporate demand as much as we would have expected, so we think Q4 ended up pretty well for both consumer and corporate for them,'' Niles said.

The upside surprise comes on the back of a quarter in which Compaq warned of lower results and then posted a loss of 7 cents per share.

Compaq lost its top spot among PC makers in 2001 as demand slowed and competitor Dell Computer Corp. (Nasdaq:DELL - news) launched an aggressive price war that hurt Compaq's margins.

Analysts were expecting a loss of 3 cents per share on revenue of $7.63 billion in the fourth quarter, according to Thomson Financial.

In early New York Stock Exchange (news - web sites) trading on Monday, Compaq shares were up 59 cents, or 5.2 percent, at $11.98.

Shares of No. 1 PC maker Dell were also higher on strong volume, gaining 2 percent to $30.20. Investment bank Robertson Stephens on Monday raised its rating on Dell to a ``buy'' from a ''market perform''.