Compaq Computer on Tuesday squeaked past diminished expectations for the fourth quarter and fiscal year 2000. But a massive write-off on investments sideswiped what otherwise would have been a profitable quarter. The Houston-based computer company earned $515m (£352m), or 30 cents a share, excluding one-time charges. That topped the 28 cents per share average forecast by analysts polled by First Call. For comparison, Compaq's third-quarter income, including investment gains, topped $550m, or 31 cents a share. In the fourth quarter of 1999, Compaq's net income was $332m, or 19 cents a share. Compaq posted $11.5bn in sales, up 10 percent from a year earlier, when revenue reached $10.5bn. Analysts had predicted about $11.5bn in sales for the fourth quarter. Compaq's revenue rose slightly from $11.2bn in the third quarter. But Compaq also took a one-time charge of $1.8bn primarily to write down losses associated with the decline in value of Compaq's holding of stock in Internet incubator CMGI. Compaq acquired approximately 17 percent of CMGI in its sale of AltaVista. Including the one-time charge, Compaq reported a net loss of $672m, or 39 cents a share. For the year, Compaq's income from operations grew threefold to $1.7bn. But factoring the write-down, the company had net income of $569m, or 33 cents a share, flat year over year. Analysts had expected earnings per share of 96 cents. Compaq earned $569m, or 34 cents a share. Revenue rose 10 percent to $42.2bn, up from $38.5bn in 1999. Like many other computer companies, Compaq issued a fourth-quarter profit warning, cutting expectations by as much as 10 percent. Before the warning, analysts had expected revenue growth close to 18 percent and 36-cents earnings per share. Compaq is the first of the top-three PC makers to announce earnings, which analysts said could foreshadow results from Dell Computer and Hewlett-Packard. Both companies disclose fourth-quarter results in mid February. Dell issued a profit warning on Monday, as did HP last month. "Compaq continued to deliver improved year-over-year results in the fourth quarter of 2000," chief executive Michael Capellas told financial analysts during a conference call following the announcement. "I am particularly proud of our ability to drive profitable growth in a very difficult market environment." Fourth-quarter results demonstrate the wherewithal of Compaq's enterprise and services businesses, which accounted for 90 percent of the operating profit but just 51 percent of revenue, Capellas said. This helped compensate for a consumer loss and lower commercial PC revenues. "Server revenue grew 22 percent from the same quarter last year, and storage increased 17 percent, including more than 50 percent in enterprise storage," Capellas said. Capellas said the $1.8bn non-cash charge "largely reflects the write down of CMGI stock to market value, an issue we discussed with you in December." Compaq grappled with sluggish commercial and consumer PC sales during the fourth quarter, with the company's consumer division reporting a loss of $6m. A year earlier, the consumer group earned $69m. Compaq's commercial PC group remained profitable, with $113 million net income, compared with a $79 million loss during the fourth quarter of 1999. Consumer revenue was nearly flat year-over-year at $2bn. Commercial revenue dropped to $3.47bn, from $3.9bn in the fourth quarter of 1999. The enterprise group posted mixed results, with some segments showing signs of weakness. Overall, the division's revenue rose to $4.1bn, from $3.4 bn a year earlier. The division earned $722m, compared with $439m a year earlier. Services declined slightly to $1.8 bn, from $1.9 bn during the year-ago fourth quarter. Income dropped to $241m, from $275 million a year earlier. Geographically, Compaq sales rose 10 percent in the US and 3 percent in Europe, the Middle East and Africa. Revenue rose 26 percent in Asia-Pacific, 16 percent in China, 36 percent in Japan and 24 percent in Latin America. Gross margins rose 1.5 percent year-over-year to 23.7 percent. Operating expenses declined 1 percent to $2 bn, or 17.1 percent of revenue. Compaq, like other PC makers, took a beating during the typically high-sales holiday season. Market researcher PC Data reported overall December retail revenue plummeted 30 percent year-over-year. Preliminary fourth-quarter data from IDC shows US PC shipments rose a scant 0.3 percent year-over-year. The unexpected sales slowdown and a sudden buildup of inventory walloped Compaq's consumer division, which dragged down overall profits, analysts said. December retail sales tell part of the story. For Compaq, overall December retail sales--including stores, catalog and online outlets--dropped 19.5 percent year-over-year, compared with HP's 1.1-percent decline, according to PC Data. At stores, Compaq's sales plummeted 25 percent, while HP was flat year-over-year. This helped HP reclaim its retail sales lead in a stunning turnaround. In overall December retail sales, HP had 38.6 percent market share, compared with Compaq's 35.6 percent, according to PC Data. A month earlier, Compaq led 41.9-percent market share compared with HP's 31.2 percent. HP widened its lead in stores, with 44.1-percent share to Compaq's 35.5 percent. In November, Compaq whooped HP, 43.5 percent share to 34.5 percent. But Compaq's problems were far worse in retail notebooks, a category where Compaq has long led with over 40-percent market share. In December, rival Sony closed the gap with 21.3-percent share, compared with Compaq's 22.5 percent, according to PC Data. In overall retail, Compaq had 31.2-percent market share, compared with Sony's 26.6 percent. A month earlier, Compaq had 31.8-percent share, vs. 24.5 percent for Sony. Compaq's major retail rival started closing the distance during the summer, culminating in brutal November price war. In the past, Compaq relied on sales of notebooks--with much higher margins than desktops -- to help offset slim desktop margins. "This spells more bad news for the consumer group, because these are the higher-margin products that make up a large part of the mix for them," said Technology Business Research analyst Lindy Lesperance. Typically, Compaq has "relied on portable margins to compensate for razor-thin desktop" margins, she said. "The loss of the commanding position in consumer notebooks is a big defeat, because basically they've had better revenue and margins per unit," said IDC analyst Roger Kay. "This is a value business that Compaq wants, along with the server business and workstation business." See techTrader for the latest technology investment news, plus quotes and research. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the ZDNet News forum. Let the editors know what you think in the Mailroom. And read other letters.