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Stock gains increase Compaq&#039s 1Q earnings

Investment gains helped Compaq (NYSE: CPQ) boost earnings in the first quarter.

The computer maker on Tuesday reported first quarter earnings of $281 million, or 16 cents per share, excluding profits from the company's strategic portfolio. First Call's survey of 29 analysts predicted a profit of 19 cents per share for the quarter ended Mar. 31.

Including $44 million in gains related to Compaq's strategic investments, the company earned $325 million, or 19 cents per share.

Shares of Compaq rose in late Tuesday action immediately following the earnings report. About 25 minutes before market close, the stock traded at 27 15/16, up 1 9/16 for the session.

First quarter revenue increased 1 percent year-over-year to $9.51 billion. Gross margin rose 0.8 percentage points sequentially. Operating expense fell 8 percent sequentially.

"Overall, I am pleased with our improved execution in the quarter as the fourth to first quarter transition has traditionally been challenging for us," said Michael Capellas, president and CEO. "While our revenue was affected by the early quarter industry slowdown caused by the Y2K lockdown, a general weakness in Europe, and continued efforts to reduce our channel inventory, we met our earnings objectives.

Enterprise revenue fell 4 percent year-over-year, with Compaq blaming the decline on European weakness, reductions of inventory in sales channels and Y2K-related freezes on corporate spending. Other companies, including IBM (NYSE: IBM), Unisys (NYSE: UIS) and Gateway (NYSE: GTW), recently reported soft sales in the enterprise sector during the first quarter.

Commercial PC revenue fell 7 percent from the year ago period. Consumer revenue rose 35 percent year-over-year.

"We do not underestimate the challenges that remain, but our progress is evident both from our financial results and from the momentum we're gaining in the market," Capellas said. "We believe that this trend will continue in the second quarter and accelerate during the second half of the year."

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