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Compaq tops 3Q estimates

The return to profitability for Compaq (NYSE: CPQ) was a little stronger than analysts expected.

In third quarter results released after market close Tuesday, the Houston-based computer maker reported net income of $117 million, or 7 cents per share, excluding one-time charges. First Call's survey of 31 analysts predicted a profit of 5 cents per share.

Third quarter revenue of $9.2 billion represented a 5 percent improvement year-over-year and a 2 percent decline sequentially. That figure was lower than expectations, said Michael Capellas, CEO of Compaq.

Executives were optimistic about the fourth quarter, although they declined to be specific about revenue growth targets. "We see very, very strong orders this quarter," Capellas said, during a conference call with analysts.

Compaq intend to drive growth by building on its high-end server and storage business, introducing new devices for connecting to the Internet, and offering simpler pricing and distribution for its commercial business, Capellas said.

During the third quarter, Compaq recorded non-recurring charges of $868 million related to restructuring moves that include about 7,000 job cuts, and a one-time gain of $1.2 billion from the sale of its majority interest in AltaVista to CMGi. Including those events, Compaq earned $140 million, or 8 cents per share.

Compaq cut operating costs to $2.02 billion from $2.2 billion in the second quarter.

Sales to large corporate customers was especially strong in the third quarter. Enterprise solutions and services generated $4.9 billion, about flat from the second quarter and 12 percent higher from a year ago. Products, led by Compaq's ProLiant servers, were especially strong with 14 percent growth year-over-year. The company's Industry Standard Server unit, which sells ProLiant servers, saw 27 percent improvement.

Services revenue increased 7 percent from a year earlier, with professional services improving 17 percent.

Commercial PC revenue fell to $2.7 billion, down 16 percent sequentially and down 12 percent year-over-year, with executives blaming channel inventory reductions for cutting revenue by $200 million, and the Taiwanese earthquake for a $40 million reduction. The division lost $169 million in the third quarter.

Consumer revenues rose 22 percent from the second quarter, and 15 percent from the third quarter of last year. The company cited International Data Corp. estimates that showed Compaq with the top share in the worldwide PC market. Compaq now sees $1 million daily in pure Web sales, which don't include phone sales stemming from a visit to the company's Web store, Capellas said.>