Compaq Computer met analysts' estimates in its second quarter Tuesday, posting a profit of $387m, or 21 cents a share, on sales of $10.1bn. Officials also said they expect double-digit sales growth in the second half. First Call consensus expected the PC maker to earn 21 cents a share in the quarter. Compaq shares closed up 9/16 to 27 1/2 ahead of the earnings report before moving up to 28 1/4 in after-hours trading. The $10.1bn in sales marks an eight percent improvement from the year-ago quarter when it lost $184m, or ten cents a share, on sales of $9.4bn. Including investment gains, Compaq earned 22 cents a share in the quarter. On a conference call with analysts, chief executive Michael Capellas was upbeat. "Clearly we have some work to do, but momentum is building for a strong second half," he said. Officials said Compaq was comfortable with analysts' third quarter estimates calling for third quarter sales of $10.8bn and a profit of 29 cents a share. In the second quarter, Compaq checked in with gross profit margins of 23.6 percent, up three percent from the year-ago quarter. Operating expenses fell to $1.8bn in the quarter, down $378m, or five percent, from the year-ago quarter. By region, Compaq sales improved ten percent in North America. Latin American sales jumped 29 percent while sales into the Asia-Pacific and Japanese regions improved 12 percent and 40 percent, respectively. Capellas said he expects Compaq to gain market share in the second half as it "profitably drives for growth." Despite three quarters of turnaround progress, Compaq has its share of doubters. On Monday, Salomon Smith Barney cut Compaq from a "buy" recommendation to "neutral" and lowered its 12-month price target to $45 a share to $25 a share on revenue and channel inventory concerns. "We have confirmed that Compaq has extended price protection terms on some corporate products from 20 days to 30 days," said analyst Richard Gardner in a research note. "We are not sure whether this is related to existing channel inventories, or inventory that could go into the channel between now and the end of the quarter, but it is not a positive signal." Gardner said he believes Compaq's channel inventories are the highest among the major PC vendors, and that inventory buildup may have a negative near-term impact on PC margins. Last quarter, Compaq met analysts' estimates, earning $281m, or 16 cents a share, on sales of $9.51bn. Its shares hit a 52-week high of 34 in January after falling to a low of 18 1/4 in October. First Call consensus expects it to earn $1.08 a share in the fiscal year. Twenty-three of the 30 analysts following the stock rate it either a "buy" or "strong buy". See ZDII for US tech investor news. See techTrader for more technology investment news, plus quotes and research. What do you think? Tell the Mailroom. And read what others have said.