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Compaq beats views but revenue falls

The Houston-based PC maker beats analysts' expectations but sees revenue fall across its business groups.

Compaq Computer on Thursday beat analysts' expectations for the first quarter, but revenue continued to fall.

Including charges related to its pending merger with Hewlett-Packard, Compaq earned $44 million, or 3 cents per share. Excluding charges, the company earned 4 cents a share.

Revenue for the quarter was $7.7 billion, down from $9.2 billion in the same quarter a year before. Sales from the company's Intel-based server group and its storage group remained flat sequentially. All other groups, including services, PCs and fault-tolerant PCs, saw sales fall for the quarter.

Analysts expected the Houston-based PC maker to earn a penny per share for the first quarter, on revenue of $7.6 billion, according to First Call.

In the same quarter last year, the company earned an operating profit of $214 million, or 13 cents per share, excluding one-time costs. Including those costs, Compaq reported a loss of $131 million, or 8 cents per share.

That Compaq would hit expectations came as little surprise as the company said on April 8 that it would meet or exceed analysts' estimates for the quarter. Compaq's ability to surpass expectations, however, seemed to come from a number of cost-cutting moves.

"We are seeing the benefits of the operational and business-model improvements we made over the past year," Jeff Clarke, Compaq's chief financial officer, said in a statement. "Even as we prepare for Compaq's merger with Hewlett-Packard, we have demonstrated a relentless focus on execution that bodes well for the operations of the combined company."

Despite continued uncertainty surrounding the proposed merger with HP, Compaq signed up a number of long-term, multimillion-dollar contracts for services, servers and storage products during the quarter.

Hardware sales for the quarter, however, were a mixed bag. While sales of industry-standard servers--servers that contain Intel chips and use either Microsoft or Linux operating systems--were basically flat, storage sales fell 13 percent sequentially. Additionally, sales of high-end, fault-tolerant servers fell 33 percent sequentially.

Compaq CEO Michael Capellas said during the company's earnings conference call that the "market continues to move to Compaq's strengths," meaning customers will continue to buy products that are crucial to the company's success, despite the overall market slowdown.

Those products include Compaq's ProLiant server line, notebook PCs, network storage products and even the iPaq Pocket PC personal digital assistant. ProLiant unit sales in the first quarter, for example, were up 3 percent year over year, Capellas said. Also, notebook PC unit sales were up 6 percent year over year, while iPaq sales were up 14 percent year over year. Compaq said it will hit the two-million-sold mark for iPaq this month.

During the call, Capellas noted that this quarter's conference call would likely be Compaq's last. Despite legal complications, including a lawsuit brought on by Walter Hewlett, Compaq expects to close its merger with HP soon.

The deal should be done in "the next few weeks," Capellas said. "The next time we talk, we'll be discussing the financial results of the combined company."

As a result, Capellas said the company would not provide any financial estimates for the second quarter, or beyond.