Compaq Forecasts Lousy Quarter

Updated from 5:28 p.m. ET

You can blame Dell (DELL Quote) for this one. Compaq (CPQ Quote) reported first-quarter earnings a penny below drastically lowered expectations Monday and warned of a sharper decline in profits in the second quarter.

Compaq said that, excluding charges, it earned $200 million, or 12 cents a share, 1 cent shy of the 13 cents that analysts polled by Thomson Financial/First Call were expecting and below the 17 cents a share the company posted last year. Revenue came in at $9.2 billion, about $60 million higher than expected.

Those estimates weren't exactly pristine benchmarks. Last month Compaq warned that its first-quarter earnings would fall between 12 cents and 14 cents a share, the midpoint of which was a massive 38% below the company's prior guidance. It also cut its sales target to $9 billion to $9.2 billion -- as much as $600 million below the previous forecast and roughly 4% below the year-ago period, which itself was hardly a blowout quarter. That warning represented at least a tacit admission that Compaq was having difficulty sticking to the plan it outlined early this year: protect profit margins by remaining aloof from the price war that Dell is waging against its PC-making rivals. ...