Sales for the quarter ending March 31 rose to $5.7 billion, up nearly 8 percent from the $5.3 billion reported in the same quarter a year ago.
Net income fell 96 percent to $16 million, or 1 cent per share, compared with a net income of $414 million, or 27 cents per share on a diluted basis, for the first quarter of 1997. Earnings were in line with analysts' revised estimates.
The company's stock gained nearly 8 percent in early trading, up from yesterday's close of 24-1/4.
"As we indicated in early March, sales from our North American commercial channels were not meeting our expectations. At that time, we said we would immediately reduce prices and aggressively promote commercial products in North America in order to reduce inventories," Eckhard Pfeiffer, Compaq's president and chief executive, said in a statement. "As a result, we are seeing an acceleration of sales out of the channel."
Those accelerated sales, however, do not mitigate Compaq?s problems.
Rather, the company said it will take another quarter of adjustment to put the company's core business on a track of improved profitability.
The maker of personal computers said that inventory decreased by $314 million from the fourth quarter of 1997.
While the second quarter is being called "a period of adjustment," Compaq also said it is arming itself with a handful of new products, such as handheld devices and high-end servers.
The PC giant told analysts that its second quarter is going to be roughly break-even. Analysts are expecting Compaq to post profits of 9 cents per share for that period, according to First Call.
Compaq CFO Earl Mason said the company does not plan to offer any guidance on its third or fourth quarter prospects until completing its pending merger with DEC.
The company warned in early March that its first-quarter revenues would be roughly flat from a year ago--far below Wall Street's expectations.
Compaq was not the only one with a disappointing preannouncement. Others, such as Intel (INTC), Motorola (MOT), and Advanced Micro Devices (AMD) also reported in March that their quarterly earnings will fall below Wall Street's expectations.
Reuters contributed to this report.