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HOUSTON, TX -- Compaq Computer Corporation (NYSE: CPQ), a leading global provider of enterprise technology and solutions, today reported financial results for the fourth quarter ended December 31, 2001. Revenue for the fourth quarter was $8.5 billion, an improvement of $1 billion -- or 14 percent -- sequentially, and down 26 percent year-over-year. Net income for the quarter was $92 million, or $0.05 per diluted common share. Excluding a $36 million charge for merger-related expenses, the company earned $0.06 per share. "Our fourth quarter results clearly demonstrate Compaq's strong focus on execution and solid market momentum," said Michael Capellas, chairman and chief executive officer. "Early last year, we outlined three strategic objectives for the company: extend our enterprise capabilities, grow and achieve critical mass in global services, and improve the economics of our PC business while increasing the velocity of our supply chain. There is still work to do, but we have made significant headway." The company's results represent improvement across its business, including: -- Solid sequential growth in all enterprise businesses -- Continued growth in Compaq Global Services, both sequentially and year-over-year -- A 1.2 point improvement in gross margin sequentially -- Sequential reductions in operating expenses, on a $1 billion increase in revenue -- A strong performance in Europe, where revenue was up 31 percent sequentially. Fourth quarter gross margin, as a percentage of revenue, was 20.6 percent, up 1.2 points sequentially, reflecting volume increases and mix improvements. Gross margins in PCs increased a full 3 points. Fourth quarter operating expenses were $1.54 billion, a sequential reduction despite a $1 billion increase in revenue, and down approximately $500 million year over year. "This is the fourth consecutive quarter of operating expense reductions and reflects the rapid completion of our restructuring program and stringent cost control," stated Jeff Clarke, chief financial officer. "It is also the seventh consecutive quarter that the company has generated cash from operations." In the same quarter last year, Compaq reported revenue of $11.5 billion and a net loss of $672 million, or $(0.39) per common share. Adjusted for special items, net income was $515 million, or $0.30 per diluted common share. Business Outlook "While we did see some strengthening of the IT market in the fourth quarter, first half growth will be moderate and pent-up demand should drive a stronger recovery in the second half of the year. Accordingly, we expect first quarter revenue of approximately $7.6 billion and EPS of $0.01, consistent with normal seasonal trends," Capellas said. Business Overview Compaq Global Services continued to be the company's strongest segment, with revenue of approximately $2 billion, showing 8 percent sequential growth and 4 percent growth over the prior year period. Operating profit was $253 million or 12 percent of revenue. The services business now comprises 24 percent of Compaq's revenue. During the fourth quarter, Global Services experienced strongest growth in customer support and financial services. One of the natural outgrowths of Compaq's strength in customer support is the expansion of its managed services business -- which includes outsourcing, Computing on Demand and other IT utility programs. The value of managed services contracts booked in the year increased by more than 25 percent from the prior year. Revenue from the Enterprise Computing segment -- built on the pillars of fault-tolerant and high performance computing, enterprise storage and industry standard servers -- was up 15 percent from the third quarter to $2.7 billion. During the fourth quarter, the Business Critical Solutions Group -- responsible for fault-tolerant and high performance systems -- grew 31 percent sequentially on the strength of Compaq's NonStop Himalaya and AlphaServer systems. The company strengthened its commercial and HPTC AlphaServer offerings during the quarter with the launch of the ES/SC45 AlphaServer, the only 1GHz mid-range system in the market. SC45 AlphaServer solutions are at the heart of the Pittsburgh Supercomputing Center's supercomputer for the National Science Foundation, the world's largest supercomputer dedicated to non-classified research. In the Enterprise Storage Group, revenue was up 14 percent from a strong performance in the third quarter, with growth in all regions. During the fourth quarter, IDC reported that Compaq had regained the number one market position in overall storage, including revenue, units and capacity shipped. Compaq surged past the enterprise storage industry in 2001, becoming the first company ever to ship more than 100 petabytes of disk storage in one year, according to IDC. Revenue from the Industry Standard Server Group grew 9 percent sequentially. During the quarter, ISSG announced its vision for "adaptive infrastructure," a blueprint that sets the foundation for the next generation of technologies and solutions based on Compaq ProLiant servers, and illustrates how the company is differentiating its products and solutions with innovative software and software tools from Compaq. Revenue in the company's Access business segment was $3.8 billion, an increase of 16 percent sequentially, and down 31 percent year over year. Strong double-digit growth in Europe, Japan and Latin America fueled the sequential growth. The segment posted a loss of $69 million for the quarter, an improvement of $186 million over the third quarter, reflecting the sequential volume increase, continued expense discipline and ongoing operational improvements. In 2001, the company focused on improving the Access business model. By the fourth quarter, access operating expense was reduced by 28 percent, and the company completed its plan for the worldwide outsourcing of portable computers and desktops for the indirect channel. Doubling inventory turns to 62 times meant that the segment was effectively running an annualized $15 billion business off some $225 million of inventory. Greater efficiencies in the indirect portion of the business, as well as the implementation of auto-replenishment capabilities in North America, drove significant inventory reductions of $1.2 billion. In addition, the company's new Evo line of desktops, portables and notebooks recently won Best of Comdex and Best of CES (Consumer Electronics Show). Full Year 2001 Results Revenue for the year ended December 31, 2001, totaled $33.6 billion, a decrease of 21 percent from the prior year. Excluding special items for the year, net income was $256 million, or $0.15 per diluted common share, down 85 percent from the prior year. Reported net income for the full year was a loss of $785 million, or ($0.47) per common share.