Compaq Meets Street With Second-Quarter Turnaround

Gains in its commercial PC and server businesses Tuesday helped Compaq meet analysts' expectations for its second quarter, as the company reported net income of $362 million, or 21 cents per share excluding investment gains, compared with a loss of $184 million in the same period last year. The per-share earnings were in line with estimates of analysts surveyed by First Call.

Revenue for the period ended June 30, which caps the first year of CEO Michael Capellas' tenure at Compaq's helm, was $10.1 billion, compared with $9.4 billion a year ago.

Among the many bright spots in Compaq's second quarter was its commercial PC business, which finally showed a profit after several quarters in the red. Compaq officials attribute much of the rebound to the company's move to a more direct sales and distribution model.

Similarly, the company's Industry Standard Server Group, whose market share has eroded in recent quarters in the face of aggressive competition from Dell Computer, jumped 40% year over year to $1.5 billion in revenue.

On the downside, Compaq's revenue from sales of Unix servers decreased 13% to $750 million as a result of changes in the company's product mix, while sales of Global Services dropped 4% to $1.7 billion.

Overall, analysts applauded Compaq's apparent turnaround, though some questioned whether it can be sustained. "Given the company's rocky history, prudent investors should wait for hard evidence that a sustained turnaround is under way," said U.S. Bancorp Piper Jaffray analyst Ashok Kumar in a research report issued after Compaq released its second-quarter numbers. Kumar, nonetheless, rates Compaq's stock an aggressive buy.