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STOCKS TO WATCH: Compaq, FreeMarkets, Novellus

Expect the following technology stocks to be among Tuesday's most actively traded issues: Compaq, FreeMarkets and Novellus Systems.

  • Compaq (NYSE: CPQ)

    Compaq will be active Tuesday after it missed analysts' lowered estimates in its first quarter and warned that aggressive pricing from its rivals and a slowdown in PC demand will result in more "challenging" conditions in the second quarter.

    It also announced it will axe another 2,000 employees in a cost-cutting move.

    In the quarter, Compaq earned $200 million, or 12 cents a share, on sales of $9.2 billion.

    Analysts were projecting a first-quarter profit of 13 cents a share on average, according to First Call.

    "While we believe the second quarter will continue to be challenging, it also provides an opportunity to make significant improvements in our business model," Chief Executive Officer Michael Capellas said in a prepared release.

    In the year-ago quarter, Compaq earned $296 million, or 17 cents a share, on sales of $9.5 billion.

    Analysts are expecting a profit of 17 cents and 79 cents a share for the second quarter and fiscal year, respectively.

    Its shares closed off 86 cents to $20.65 ahead of the earnings report.

  • FreeMarkets (Nasdaq: FREE)

    The operator of online business-to-business marketplaces will be on the move Tuesday after posting a smaller-than-expected loss in its first quarter.

    While FreeMarkets lost only 24 cents a share in the quarter, total sales checked in at $33 million.

    First Call consensus pegged it for a loss of 26 cents a share on sales of $36 million.

    Separately, FreeMarkets said staff members of the U.S. Securities and Exchange Commission believe the company should not classify payments from its largest customer, Visteon, as revenue. Visteon generated $2.8 million of the $33 million reported as first-quarter revenue.

    The SEC staff contends that because FreeMarkets gave Visteon a warrant for 1.75 million shares of stock, Visteon is really paying FreeMarkets for the warrants, not products or services.

    FreeMarkets shares fell $1.52 to $10.29 ahead of the earnings report before moving up to $10.65 in after-hours trading.

    FreeMarkets executives told analysts to expect second-quarter sales of $38 million. Analysts were expecting total sales of around $41 million.

  • Novellus Systems (Nasdaq: NVLS)

    The chip-equipment maker endured a rough first quarter but still managed to top analysts' estimates, earning $91.2 million, or 62 cents a share, on sales of $458.7 million.

    First Call consensus expected the semiconductor-equipment maker to earn 61 cents a share on sales of $441.5 million.

    Its shares closed off $1.94 to $51.14 ahead of the earnings report before moving up to $52.35 in after-hours trading.

    The $458.7 million in sales marks a 109 percent improvement from the year-ago period when it pocketed $23.8 million, or 17 cents a share, on sales of $220 million.

    Shipments in the first quarter fell to $413.1 million, down from $477.8 million last quarter but up from $299.7 million in the year-ago quarter.

    Gross profit margins in the quarter slipped to 55.6 percent, down from 57.2 percent last quarter.

    Looking ahead, Hill said he expects shipments in the second quarter to fall around 40 percent from the first quarter.

    Hill told analysts to expect sales of $379 million in the second quarter and earnings or 40 cents a share, in line with current analyst estimates.