SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

FOR  THE  FISCAL  YEAR ENDED DECEMBER 31, 1998     COMMISSION FILE NUMBER 1-9026

                           COMPAQ COMPUTER CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                          76-0011617
     (STATE OR OTHER JURISDICTION OF           (I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION)           IDENTIFICATION NO.)

                       20555 SH 249, HOUSTON, TEXAS 77070
                                 (281) 370-0670
          (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
             AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

SECURITIES  REGISTERED  PURSUANT  TO  SECTION  12(B)  OF  THE  ACT:

                                           NAME OF EACH EXCHANGE ON
         TITLE  OF  EACH  CLASS              WHICH  REGISTERED
         ----------------------              -----------------
     Common Stock, $.01 par value          New York Stock Exchange
     Depositary shares each representing   New York Stock Exchange
     one-fourth of a share of 8-7/8%
     Series A Cumulative Preferred Stock,
     par value $1 per share
     Debt Securities                       None

SECURITIES  REGISTERED  PURSUANT  TO  SECTION  12(G)  OF  THE  ACT:  None

     Indicate  by  check  mark  whether the registrant (1) has filed all reports
required  to  be  filed by Section 13 or 15(d) of the Securities Exchange Act of
1934  during  the  preceding  12  months  (or  for  such shorter period that the
registrant  was required to file such reports), and (2) has been subject to such
filing  requirements  for  the  past  90  days.  Yes  [X]   No  [ ].

     Indicate  by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  registrant's  knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K.    [X]

     The  aggregate  market  value of the voting stock held by non-affiliates of
the  registrant  on  January  29,  1999 (assuming all officers and directors are
affiliates and based on the last sale price on the New York Stock Exchange as of
such  date)  was  approximately  $80  billion.

     The  number  of  shares  of  the registrant's Common Stock, $.01 par value,
outstanding  as  of  January  29,  1999,  was  approximately  1.7  billion.

                       DOCUMENTS INCORPORATED BY REFERENCE

     There  is  incorporated by reference in Part II and Part III of this Annual
Report  on  Form  10-K  certain of the information contained in the registrant's
proxy  statement  for  its  annual  meeting of stockholders to be held April 22,
1999,  which  will be filed by the registrant within 120 days after December 31,
1998.
  _____________________________________________________________________________

<PAGE>
PART  I

ITEM  1.  BUSINESS

GENERAL

     Founded in 1982, Compaq Computer Corporation ("Compaq" or the "Company") is
a  global information technology company.  Compaq is the second largest computer
company  in  the  world  and  the  largest global supplier of computing systems.
Compaq  develops  and  markets  hardware,  software,  solutions  and  services,
including  industry-leading  enterprise  computing  solutions,  fault-tolerant
business-critical  solutions,  networking and communication products, commercial
desktop and portable products and consumer PCs. Compaq products and services are
sold in more than 100 countries through subsidiaries and a network of authorized
Compaq marketing partners. Compaq markets its products and services primarily to
customers  from  the  business,  home,  government,  and  education  sectors.

RECENT  AND  PENDING  ACQUISITIONS  AND  COMPANY  FORMATION

     In  February  1999,  Compaq  announced the execution of a definitive merger
agreement  with  Zip2  Corporation,  the  leading  provider of Internet platform
solutions for media companies and local e-commerce merchants.  Completion of the
transaction  is  subject  to customary conditions, including clearance under the
Hart-Scott-Rodino  Antitrust  Improvements  Act.

     In  January  1999,  Compaq  announced  a  cash  tender offer for all of the
outstanding  shares  of  common  stock of Shopping.com, an on-line retailer that
offers  Internet  shoppers an array of consumer products.  In February the offer
was  successfully  concluded,  with  96%  of  the  shares  tendered.  Compaq  is
proceeding with the steps necessary to complete the merger, which is anticipated
in  March.  The  aggregate  purchase price for Shopping.com is anticipated to be
approximately $220 million.  Completion of the transaction is subject to certain
conditions,  including  clearance  under  the  Hart-Scott-Rodino  Antitrust
Improvements  Act.

     In January 1999, Compaq announced the formation of the AltaVista Company, a
wholly owned subsidiary established to become a leading Internet site for search
capabilities,  localized  information,  e-commerce and e-services.   Compaq will
contribute to the AltaVista Company the AltaVista search site and the associated
intellectual  property,  Shopping.com,  Zip2  Corporation and certain additional
cash and assets.  Compaq anticipates offering a portion of the AltaVista Company
to  the  public  in  1999.

     In  June  1998,  Compaq  completed  the  acquisition  of  Digital Equipment
Corporation  ("Digital").  This acquisition was accounted for under the purchase
method  of  accounting for an aggregate purchase price of $9.1 billion.  Digital
was  an  industry  leader  in  implementing  and  supporting  networked business
solutions  in  multi-vendor environments based on high performance platforms and
had an established global service and support team.  For further information see
Note  2  of  the  Notes  to  Consolidated  Financial  Statements.

     In August 1997, Compaq merged with Tandem Computers Incorporated ("Tandem")
in  a  stock-for-stock  transaction  accounted  for  as  a pooling of interests.
Tandem  provided  its  customers  with  reliable,  scaleable,  fault-tolerant
enterprise computer systems and client/server solutions.  In connection with the
merger,  Compaq  issued approximately 126 million shares of Compaq common stock,
based  upon  an  exchange  ratio  of 1.05 shares of Compaq common stock for each
share  of  Tandem common stock.  For further information see Note 2 of the Notes
to  Consolidated  Financial  Statements.

     In  May  1997,  Compaq  completed  a  cash  tender offer for Microcom, Inc.
("Microcom"),  a  manufacturer  of remote access technologies and solutions, for
$288  million.  For  further information see Note 2 of the Notes to Consolidated
Financial  Statements.

                                        2
<PAGE>
GEOGRAPHICAL  SEGMENTS

     Compaq  continues  to  expand  its  worldwide  presence  through geographic
divisions  in  North America, Asia Pacific, Japan, Latin America, Greater China,
Europe,  the  Middle  East  and Africa.  Each division operates as an individual
business  unit.  For  further  information  on  Compaq's  operating  segments,
including  revenues  for  1998,  1997  and 1996, see Management's Discussion and
Analysis  of  Financial  Condition  and Results of Operations and Note 12 of the
Notes  to  Consolidated  Financial  Statements.

North  America

     Through  the  North  America  division,  Compaq  delivers  a broad range of
products  and  services  in  the  U.S.  and  Canada.

Europe,  Middle  East  and  Africa

     Compaq,  which  entered  the  European  market  in  1984  with wholly owned
subsidiaries in Germany, the United Kingdom and France, now also operates wholly
owned  subsidiaries  in  Austria,  Bahrain,  Belgium,  Czech  Republic, Denmark,
Finland, Greece, Hungary, Italy, the Netherlands, Norway, Scotland, Spain, South
Africa,  Sweden,  Switzerland,  Portugal  and Poland. The European division also
covers  the  Middle  East  and  Africa.

Asia  Pacific

     Compaq  established  Compaq  Computer  Asia  Pacific  Pte.  Ltd.  in  1991.
Headquartered  in  Singapore,  Compaq's Asia Pacific subsidiaries are located in
Australia,  Malaysia,  New Zealand, Singapore and Thailand.  Compaq products are
sold  and  supported  throughout  this region by Compaq offices in Korea, India,
Brunei,  Indonesia,  Philippines  and  Indochina.

Greater  China

     In  1997,  Compaq  established  the  Greater  China  Region  as  a separate
geographic  region.  The new division focuses on efforts in China, Hong Kong and
Taiwan.

Japan

     In  1991,  Compaq  announced  the  opening  of  its  wholly  owned Japanese
subsidiary,  Compaq  K.K.,  headquartered  in Tokyo.  Compaq offers products and
services  designed  exclusively  for  the  Japanese  market.

Latin  America

     Compaq  began  operations in Latin America in 1989.  The Company opened its
first  wholly  owned  subsidiary  in Latin America in Mexico, in 1991, and other
subsidiaries  have  since  been  opened  in  Argentina, Brazil, Chile, Columbia,
Venezuela and the Caribbean/Central America.  Compaq has continued its expansion
in  this  region by appointing dealers in Bermuda, Bolivia, Cayman, Chile, Costa
Rica,  Ecuador,  El  Salvador,  Guatemala,  Honduras, Jamaica, Panama, Paraguay,
Puerto  Rico,  Trinidad,  Uruguay  and  the  Virgin  Islands.

                                        3
<PAGE>
COMPAQ  PRODUCTS

     Compaq  develops  its  products  through  customer-focused,  global product
groups which provide our customers with solutions for leadership in the emerging
Internet-based  economy:

     The  ENTERPRISE  COMPUTING  GROUP designs and develops mainframes, servers,
workstations,  fault-tolerant  business-critical  solutions, enterprise options,
enterprise  solutions,  Internet  products, and networking products.  Enterprise
Computing products accounted for approximately 35% of Compaq's worldwide revenue
in  1998.

     The  COMMERCIAL  PC  GROUP  designs  and  develops  commercial  desktops,
portables,  options,  and  small  and  medium  business  solutions.  PC products
accounted  for  approximately  37%  of  Compaq's  worldwide  revenue  in  1998.

     The  CONSUMER  PC  GROUP  designs and develops consumer products, including
desktops,  minitowers,  portables,  printers,  and  options.  Consumer  products
accounted  for  approximately  16%  of  Compaq's  worldwide  revenue  in  1998.

     In  1999,  Compaq  plans to continue its leadership role with products that
address  new  technologies,  reliability,  high  performance,  competitive price
points,  and  new  markets.

PRODUCT  DEVELOPMENT

     Compaq  is  actively  engaged  in  the design and development of additional
products  and enhancements to its existing products. During 1998, 1997 and 1996,
Compaq  spent  $1.4  billion,  $817  million, and $695 million, respectively, on
research  and  development.  In  addition,  Compaq  spent  $3.2 billion and $208
million  on  in-process research and development in connection with acquisitions
in  1998  and  1997, respectively.  As of the date of acquisition, the estimated
costs  to  be  incurred  to  develop  the  Digital-related  purchased in-process
technology into commercially viable products total approximately $3.1 billion in
the  aggregate  through  the  year  2005.  Since  computer  technology  develops
rapidly,  Compaq's  continued success is dependent on the timely introduction of
new  products with the right price and features.  Its engineering effort focuses
on  new  and emerging technologies as well as design features that will increase
manufacturing  efficiency  and  lower production costs.  In 1998, Compaq focused
significant  attention  on  technological developments for enterprise computing,
high-availability and failsafe solutions, storage technology, enterprise systems
management,  integration  and  configuration  optimization,  and  internet  and
intranet  technologies.

     Compaq's  product  development  efforts  are  centered  on  aggressively
developing  new  areas  in  which  Compaq can differentiate its products and add
value, focusing on innovative platform features, the integration of hardware and
software,  and  new  related  products  and services.  Because Compaq's business
intersects  with  a  number of areas in which other companies have significantly
greater  technological,  marketing  and service expertise, Compaq has focused on
alliances with third parties that have complementary products and skills as well
as  acquisitions  that  target  incremental  business  opportunities.

MANUFACTURING  AND  MATERIALS

     Compaq's  manufacturing  operations  consist  of  manufacturing  finished
products  and  various  circuit  boards  from  components and subassemblies that
Compaq  acquires  from a wide range of vendors. Certain of Compaq's products are
manufactured  by  third  party  original  equipment  manufacturers  ("OEMs").

                                        4
<PAGE>
     Compaq  utilizes  two  methods of fulfilling demand for products:  building
products  to  order  ("BTO")  and  configuring  products  to  order ("CTO"). BTO
capabilities  are  employed  to maximize manufacturing efficiencies by producing
high  volumes  of  basic  product  configurations.  CTO permits configuration of
units  to  the  particular  hardware  and software customization requirements of
certain  customers.  Both BTO and CTO are designed to generate cost efficiencies
relating  to  just-in-time  manufacturing, inventory management and distribution
practices.

     Compaq  believes that there is a sufficient number of competent vendors for
most  components and subassemblies. A significant number of components, however,
are  purchased  from  single  sources  due  to  technology, availability, price,
quality  or other considerations. Order lead times and cancellation requirements
vary by supplier and component.  Key components and processes currently obtained
from  single  sources  include  certain of Compaq's displays, operating systems,
microprocessors,  application-specific  integrated  circuits  and  other  custom
chips,  and  certain  processes  relating  to  construction  of  the housing for
Compaq's  computers.  In  addition,  new  products  introduced  by  Compaq  may
initially  utilize  custom components obtained from only one source until Compaq
has  evaluated  whether  there  is  a  need  for  additional  suppliers.

     Like  other  participants  in  the  computer  industry,  Compaq  ordinarily
acquires materials and components through a combination of blanket and scheduled
purchase  orders  released  to  position  the  supplier  to  support  Compaq's
requirements  for periods averaging 90 to 120 days. From time to time Compaq has
experienced  significant  price  increases  and  limited availability of certain
components  that  are  available from multiple sources. At times Compaq has been
constrained  by  parts  availability  in  meeting  product  orders  and  future
constraints  could  have  an  adverse  effect  on Compaq's operating results. On
occasion,  Compaq  acquires  component  inventory  in  anticipation  of  supply
constraints.  A  restoration  of component availability and resulting decline in
component  pricing more quickly than anticipated could have an adverse effect on
Compaq's  operating  results.

MARKETING  AND  DISTRIBUTION

     Compaq's  hardware products are sold to large and medium-sized business and
government  customers  primarily  through  dealers,  value-added  resellers  and
systems integrators and to small business and home customers principally through
dealers  and  consumer  channels. In response to changing industry practices and
customer  preferences,  Compaq  is  continuing  its  expansion  of  distribution
establishments.  Compaq  also sells hardware products directly through its sales
force  and  to small businesses and home customers through Compaq's Internet web
page  at www.compaq.com as well as through its mail order business that features
         --------------
a  variety  of  personal  computers,  printers  and  software  products.

COMPAQ  SERVICES

     The  COMPAQ  SERVICES  GROUP  provides  innovative,  proactive  life-cycle
services  that  meet  a  wide  variety  of information technology infrastructure
business requirements.   Compaq Services accounted for 12% of Compaq's worldwide
revenue  in  1998.  Compaq  offers  a  comprehensive  portfolio  of professional
services  and support through a global network of approximately 27,000 employees
as  well  as  30,000  service  delivery partners to help customers plan, design,
implement,  and  manage  and  maintain  their  information technology solutions.

     Compaq  sells  its  services  directly  to businesses and in alliances with
other  third  party  service  providers.  Compaq's  service  offerings  include
business  critical  services  and  high  availability  support  for  multivendor
software  and  hardware  products.  Professional  services  include  information
systems  consulting;  technical  and  application  design  services;  systems
integration  and  project  management  services; network design, integration and
support  services;  and  outsourcing  and  resource  management  services.

                                        5
<PAGE>
     Compaq  has established a number of service alliances with companies in the
information  technology  industry.  To  support  customers' migration to Windows
NT-based  platforms,  Compaq  has  trained,  and  Microsoft  has  certified,  a
professional  services  workforce  of approximately 2,300 engineers dedicated to
providing  comprehensive  systems  integration  and  service  solutions.  Under
Compaq's  alliance  with  MCI  Communications  Corporation  and  Microsoft,  MCI
delivers  Internet  and  Intranet products and services to MCI subscribers based
upon  Compaq's  Alpha  servers,  Microsoft's  Windows  NT  operating system, and
Microsoft  Exchange  (TM) and Internet Explorer software products, and is backed
by  Compaq's  support  and  systems  integration  services.  Compaq is a leading
provider  of  messaging  and  collaboration  solutions  in the global enterprise
environment, and is the leading integrator of Microsoft Exchange, with more than
400  major  accounts  worldwide.  Compaq also has been designated as a preferred
service  provider  by  Computer  Associates  International,  Inc.

     Compaq  provides  support  and  warranty  repair  to its hardware customers
through  full-service  computer  dealers  and  independent  third-party  service
companies  and  through  its  service  organization. Compaq offers its customers
CompaqCare,  which  includes  a number of customer service and support programs,
most  notably  one  to  three-year limited warranties on PC products and, in the
U.S.,  round-the-clock telephone technical support for Compaq hardware products.

FINANCIAL  SERVICES

     In  1997,  Compaq  created  a  leasing  company, Compaq Capital Corporation
("Compaq  Capital"),  to provide financing to facilitate and enhance the sale of
Compaq  products  and  services  on a worldwide basis. Compaq Capital is rapidly
creating  a  worldwide  leasing/financing network through independent operations
and  joint venture relationships. In July 1997, Compaq Capital commenced leasing
operations  in  North  America  and  in October 1997, Compaq Capital implemented
leasing  operations  in  Europe.  Additional  Compaq  Capital leasing operations
rolled  out  to  selected  Asia Pacific locations in January 1998 and to certain
countries  in  Latin  America  in  the  third  quarter  of  1998.

During  1998,  Compaq  Capital  purchased  from G.E. Capital Corporation a lease
portfolio  for  $361  million.  The  underlying  equipment consists primarily of
Digital  manufactured  equipment.  Also  during  1998,  Compaq Capital purchased
certain  assets  and  assumed  certain  liabilities  of  Dana  Commercial Credit
Corporation's  computer  equipment leasing business.  The purchase price was $50
million.  The  assets  acquired  consist  primarily  of  direct financing leases
related  to  Compaq  manufactured  equipment.

PATENTS,  TRADEMARKS,  AND  LICENSES

     Compaq  and  its  subsidiaries  held  2,800  patents  and  had 2,600 patent
applications  pending  with the United States Patent and Trademark Office at the
close of 1998, as well as related international patents and patent applications.
In  addition,  Compaq has registered certain trademarks in the United States and
in  a  number  of  foreign  countries. Compaq believes that patent and trademark
protection  plays  an  important  part  in  its  business  and  complements  the
technological  expertise,  innovative  talent  and  marketing  abilities  of its
employees.

     Compaq  has  from time to time entered into cross-licensing agreements with
other  companies  holding patents to technology related to Compaq's products, as
well  as  with  companies  using  technology  related to patents held by Compaq.
Compaq  holds  cross  licenses  with  various  companies,  including  IBM, Texas
Instruments,  and  Intel.

SEASONALITY

     General  economic  conditions  have  an  impact  on  Compaq's  business and
financial  results.  From  time  to  time, the markets in which Compaq sells its
products  experience  weak economic conditions that may negatively affect sales.
Although  Compaq does not consider its business to be highly seasonal, Compaq in
general  experiences  seasonally higher sales and earnings in the second half of
the  year.  Should  Compaq's  retail  business  expand  relative  to  its  other
businesses,  Compaq  could  experience  an  increase  in  the seasonality of its
business  and  financial  results could become more dependent on retail business
fluctuations.

                                        6
<PAGE>
CUSTOMERS

     One  customer  accounted  for 8% of sales for 1998.  During this period, no
other  customer of Compaq accounted for more than 3% of sales. In 1998, Compaq's
five  largest  resellers  represented  approximately  19%  of  Compaq's  sales.

BACKLOG

     Compaq's  resellers  typically  purchase products on an as-needed basis and
resellers  frequently  change  delivery  schedules  and order rates depending on
market  conditions.  Unfilled orders can be, and often are, canceled at will and
without  penalties. In Compaq's experience, the actual amount of unfilled orders
at  any  particular  time  is not a meaningful indication of its future business
prospects  since orders rapidly become balanced as soon as supply begins meeting
demand.  Forecasting  demand for newly introduced products is complicated by the
availability  of  different  product  models, which may include various types of
built-in  peripherals  and  software,  and  configuration  requirements, such as
language  localization,  in  certain markets.  As a result, while overall demand
may  be  in  line with Compaq's projections, local market variations can lead to
differences between expected and actual demand and result in delays in shipment.
Should  Compaq  be  unable  to  meet  demand for its products on a timely basis,
customer  satisfaction  and  sales  could  be  adversely  affected.

COMPETITION

     The computer industry is intensely competitive with many U.S., Japanese and
other international companies vying for market share. The market continues to be
characterized  by  rapid  technological  advances  in both hardware and software
developments that have substantially increased the capabilities and applications
of  information  management  products  and  have  resulted  in  the  frequent
introduction of new products.  Because of the complexity of computer systems and
business  and  because of reliance upon the interaction of a variety of hardware
and  software  products, customers increasingly look for a broad band of product
and  service offerings from a single vendor who takes overall responsibility for
the  interoperability  of the system.  The principal elements of competition are
product  performance,  product  quality  and  reliability,  service and support,
price,  marketing  and  distribution capability and corporate reputation.  While
Compaq  believes  that its products and services compete favorably based on each
of  these  elements,  Compaq  could  be  adversely  affected  if its competitors
introduce  innovative  or  technologically  superior  products,  offer  a  more
attractive  combination  of  products  and  services, or offer their products at
significantly lower prices than Compaq. Compaq's results could also be adversely
affected  should  it  be  unable  to implement effectively its technological and
marketing  alliances  with  other  companies,  such as Microsoft, Intel, Novell,
Oracle  and  SAP,  among  others; and to manage the competitive risks associated
with  these  relationships.

ENVIRONMENTAL  LAWS  AND  REGULATIONS

     Compaq  recognizes  that  operating in a manner that is compatible with the
environment is good for its community, employees, customers and business. Compaq
integrates  numerous  environmental  features  in  the  product  design  and
manufacturing  process that reduce the potential environmental impact during the
lifecycle of its products and its products are designed and manufactured to meet
a  variety  of the world's environmental standards and expectations. Compaq uses
no  chlorofluorocarbons  ("CFCs")  in its worldwide manufacturing operations and
undertakes  ongoing  environmental  programs,  including waste reduction, energy
conservation,  recycling  and  design  for  the  environment. Compaq maintains a
worldwide  environmental  health  and  safety  audit  program. The audit program
includes  management  system  and  compliance  evaluations.

                                        7
<PAGE>
     The  acquisitions  of  Tandem  and  Digital  have  increased  Compaq's
environmental liability risks.  Compaq is incurring costs in connection with the
investigation  and  remediation  of certain properties that it acquired in these
business  combinations.  Pursuant  to  the Comprehensive Environmental Response,
Compensation  and  Liability  Act of 1980 ("CERCLA," also known as "Superfund"),
Compaq is sharing in the cost of cleaning up certain sites listed on the federal
National  Priorities  List of Superfund Sites.  Compliance with laws enacted for
protection  of  the environment to date has had no material effect upon Compaq's
capital  expenditures,  earnings  or  competitive  position.  Compaq  does  not
anticipate any material adverse effects in the future based on the nature of its
operations  and  the  purpose  of  environmental laws and regulations.  However,
environmental  cleanup  periods are protracted in length and environmental costs
in  future  periods  are  subject  to  changes  in  environmental  remediation
regulations,  therefore, there can be no assurance that such laws or future laws
will  not  have  a  material  adverse  effect  on  Compaq.

YEAR  2000  TRANSITION

Compaq's Year 2000 program is discussed in "Management's Discussion and Analysis
of  Financial  Condition  and  Results  of  Operations - Factors That May Affect
Future  Results  -  Year  2000  Compliance."

EMPLOYEES

At  December  31,  1998,  Compaq  had  approximately  71,000  full-time  regular
employees  and  approximately  19,000  temporary and contract workers engaged in
manufacturing  operations,  engineering,  research  and  development, marketing,
sales,  service  and administrative activities.   In connection with the Digital
acquisition,  Compaq  began  to  restructure  its combined workforces during the
second  quarter  of  1998.  Compaq  anticipates that it will have 68,000 regular
employees  by the end of June 1999.  Compaq believes that its ability to attract
and  appropriately  retain  skilled  personnel  is  critical  to  its  success.
Accordingly,  Compaq  has  developed  competitive  human  resources  policies
consistent  with  its  business  plan.

ITEM  2.  PROPERTIES

     Compaq's  principal  administrative facilities and a manufacturing facility
are  located  on  the  1,000-acre  Compaq  Campus  in  Houston, Texas.  With the
acquisition  of  Digital,  Compaq  now  owns  or  leases  administrative, sales,
service,  research  and  development, warehouse, and manufacturing facilities in
over  700  cities  in  58 countries worldwide.  Compaq's principal international
manufacturing  facilities  are  in  Scotland,  Singapore,  and  Brazil,  and its
principal domestic manufacturing facilities are in California, New Hampshire and
Texas.  Compaq  owns  and  leases  customer  service call centers worldwide, the
largest  of  which  are  in  Massachusetts,  Georgia,  Texas  and  Ireland.

     Compaq's real estate portfolio grew to approximately 32 million square feet
of  occupied space worldwide at the time of the acquisition of Digital.  In June
1998,  Compaq's  management  approved  restructuring  plans  which  included
initiatives  to  integrate  operations  of  Compaq  and  Digital,  consolidate
duplicative facilities, improve service delivery and reduce overhead.  Compaq is
in  the  process  of  restructuring  approximately  8.9  million  square feet of
occupied space.  That space along with the 4.3 million square feet of unoccupied
space  acquired  with  the Digital acquisition, gives Compaq a total restructure
portfolio  of  approximately  13.2  million square feet of space.  The continued
implementation of these restructuring plans should lower the total active square
feet  of  space  to  24  million  worldwide.

                                        8
<PAGE>
ITEM  3.  LEGAL  PROCEEDINGS

     Information  regarding  legal  proceedings  is  set forth in Note 13 of the
Notes  to  Consolidated  Financial Statements under the subheading "Litigation,"
which  information  is  hereby  incorporated  by  reference.

ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITIES  HOLDERS

     There  were  no  matters submitted to a vote of security holders during the
fourth  quarter  of  1998.

PART  II

ITEM  5.  MARKET  FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET  FOR COMMON STOCK.  Compaq's common stock is listed on the New York Stock
Exchange  and  trades  under the symbol CPQ.  As of January 29, 1999, Compaq had
approximately  89,000  shareholders of record. The reported high and low closing
stock  prices,  as  reported  on  the  NYSE  Composite Transaction Tape, were as
follows:

<TABLE>
<CAPTION>
                   1998             1997
              --------------  --------------
               High    Low     High    Low
              ------  ------  ------  ------
<S>          <C>     <C>     <C>     <C>
1st Quarter  $36.44  $23.25  $17.35  $14.40
2nd Quarter   32.44   24.06   21.63   14.40
3rd Quarter   37.50   27.94   39.13   20.38
4th Quarter   44.31   24.06   38.63   26.66
</TABLE>

DIVIDENDS  AND  DIRECT  STOCK  PURCHASE  PLAN.  Compaq  paid its first quarterly
dividend of $ 0.015 per share to shareholders of record on December 31, 1997 and
increased  this  dividend  to  $0.02  per  share  with  the  dividend payment to
shareholders  of  record on December 31, 1998.  Compaq anticipates that the cash
dividend  will continue to be paid on a quarterly basis.  Compaq has established
a  direct  stock  purchase  plan  through  which stockholders may reinvest their
dividends  and  invest  additional  amounts  directly  in  Compaq  common stock.
Additional  information  about  the  direct  stock purchase plan is available at
www.compaq.com/corporate/ir/shareplan.html.
------------------------------------------

                                        9
<PAGE>
ITEM  6.  SELECTED  CONSOLIDATED  FINANCIAL  DATA

     The  following  income  statement  and balance sheet data have been derived
from the Company's consolidated financial statements.  The information set forth
below  is  not  necessarily  indicative  of the results of future operations and
should  be  read  in  conjunction with the consolidated financial statements and
notes  thereto  appearing  elsewhere  in  this  Form  10-K.

<TABLE>
<CAPTION>
Year ended December 31 (In millions, except per share amounts)     1998       1997     1996     1995     1994
==============================================================  ==========  ========  =======  =======  =======
<S>                                                             <C>         <C>       <C>      <C>      <C>
STATEMENT OF INCOME
Revenue:
 Products. . . . . . . . . . . . . . . . . . . . . . . . . . .  $  27,372   $24,122   $19,611  $16,308  $12,274
 Services. . . . . . . . . . . . . . . . . . . . . . . . . . .      3,797       462       398      367      331
                                                                ----------  --------  -------  -------  -------
   Total revenue . . . . . . . . . . . . . . . . . . . . . . .     31,169    24,584    20,009   16,675   12,605
                                                                ----------  --------  -------  -------  -------

Cost of sales:
 Products. . . . . . . . . . . . . . . . . . . . . . . . . . .     21,383    17,500    14,565   12,026    8,671
 Services. . . . . . . . . . . . . . . . . . . . . . . . . . .      2,597       333       290      265      214
                                                                ----------  --------  -------  -------  -------
   Total cost of sales . . . . . . . . . . . . . . . . . . . .     23,980    17,833    14,855   12,291    8,885
                                                                ----------  --------  -------  -------  -------

Selling, general and administrative expense. . . . . . . . . .      4,978     2,947     2,507    2,186    1,859
Research and development costs . . . . . . . . . . . . . . . .      1,353       817       695      552      458
Purchased in-process technology(1) . . . . . . . . . . . . . .      3,196       208         -      241        -
Restructuring and asset impairment charges(2). . . . . . . . .        393         -        52        -        -
Merger-related costs(3). . . . . . . . . . . . . . . . . . . .          -        44         -        -        -
Other income and expense, net. . . . . . . . . . . . . . . . .        (69)      (23)       17       79       50
                                                                ----------  --------  -------  -------  -------
                                                                    9,851     3,993     3,271    3,058    2,367
                                                                ----------  --------  -------  -------  -------
Income (loss) before provision for income taxes. . . . . . . .     (2,662)    2,758     1,883    1,326    1,353
Provision for income taxes . . . . . . . . . . . . . . . . . .         81       903       565       433     365
                                                                ----------  --------  -------  -------  -------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . .  $  (2,743)  $ 1,855   $ 1,318  $   893  $   988
                                                                ==========  ========  =======  =======  =======
Earnings (loss) per common share:
  Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   (1.71)  $  1.23   $  0.90  $  0.62  $  0.70
  Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . .  $   (1.71)  $  1.19   $  0.87  $  0.60  $  0.68
Shares used in computing earnings (loss) per
   common share:
  Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,608    1,505     1,472    1,442    1,405
  Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . .       1,608    1,564     1,516    1,492    1,463

Cash dividends per common share. . . . . . . . . . . . . . . .  $    0.065  $ 0.015   $     -  $     -  $     -

FINANCIAL POSITION
Current assets . . . . . . . . . . . . . . . . . . . . . . . .  $   15,167  $12,017   $10,089  $ 7,462  $ 6,037
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .      23,051   14,631    12,331    9,637    7,862
Current liabilities. . . . . . . . . . . . . . . . . . . . . .      10,733    5,202     4,741    3,580    2,918
Non-current liabilities(4) . . . . . . . . . . . . . . . . . .         967        -       300      300      300
Stockholders' equity . . . . . . . . . . . . . . . . . . . . .      11,351    9,429     7,290    5,757    4,644
<FN>
(1)  Represents  non-recurring,  non-tax  deductible charges associated with purchased in-process technology of
     $3.2  billion  in  connection  with  the Digital acquisition in 1998, and $208 million and $241 million in
     connection  with  acquisitions  in  1997  and  1995.
(2)  Represents  a  $393  million charge for restructuring and asset impairments in 1998 in connection with the
     Digital  acquisition  and  the  closing  of certain Compaq facilities, and a $52 million charge related to
     restructuring  actions  taken  by  Tandem  during  1996.
(3)  Represents  a  $44  million non-recurring, non-tax-deductible charge in 1997 related to the Tandem merger.
(4)  Includes  $422  million  of  minority  interest  in  1998  related  to  Digital  preferred  stock.
</TABLE>

                                       10
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF  OPERATIONS

     The  following  discussion  should  be  read  in  conjunction  with  the
consolidated  financial  statements.

RESULTS  OF  OPERATIONS

     The  following  table  presents,  as  a  percentage  of  revenue,  selected
consolidated  financial  data  for  each  of  the three years ended December 31.

<TABLE>
<CAPTION>
Year ended December 31                              1998      1997     1996
================================================  =========  =======  =======
<S>                                               <C>        <C>      <C>
Revenue:
 Products. . . . . . . . . . . . . . . . . . . .     87.8%     98.1%    98.0%
 Services. . . . . . . . . . . . . . . . . . . .     12.2       1.9      2.0
                                                  ---------  -------  -------
   Total revenue . . . . . . . . . . . . . . . .    100.0     100.0    100.0

Cost of sales:
 Products. . . . . . . . . . . . . . . . . . . .     78.1      72.5     74.3
 Services. . . . . . . . . . . . . . . . . . . .     68.4      72.1     72.9
   Total cost of sales . . . . . . . . . . . . .     76.9      72.5     74.2

Gross margin:
 Products. . . . . . . . . . . . . . . . . . . .     21.9      27.5     25.7
 Services. . . . . . . . . . . . . . . . . . . .     31.6      27.9     27.1
   Total gross margin. . . . . . . . . . . . . .     23.1      27.5     25.8

Selling, general and administrative expenses . .     16.0      12.0     12.5
Research and development costs . . . . . . . . .      4.3       3.3      3.5
Purchased in-process technology(1) . . . . . . .     10.2       0.9        -
Restructuring and asset impairment charges(2). .      1.3         -      0.3
Merger-related costs(3). . . . . . . . . . . . .        -       0.2        -
Other income and expense, net. . . . . . . . . .     (0.2)     (0.1)     0.1
                                                  ---------  -------  -------
                                                     31.6      16.3     16.4
                                                  ---------  -------  -------
Income (loss) before provision for income taxes.     (8.5)%    11.2%     9.4%
                                                  ---------  -------  -------
<FN>
(1)  Represents  non-recurring,  non-tax-deductible  charges  associated  with
purchased  in-process  technology of $3.2 billion in connection with the Digital
acquisition  in  1998  and  $208 million in 1997 in connection with the Microcom
acquisition.
(2)  Represents a $393 million charge for restructuring and asset impairments in
1998  in  connection  with  the  Digital  acquisition and the closing of certain
Compaq  facilities,  and  a  $52 million charge related to restructuring actions
taken  by  Tandem  during  1996.
(3)  Represents  a  $44 million non-recurring, non-tax-deductible charge in 1997
related  to  the  Tandem  merger.
</TABLE>

OVERVIEW

     Compaq's  completion of recent acquisitions has resulted in an expanded and
enhanced  business model, focused on open industry-standard products, leadership
enterprise technology and solutions and a full line of global service offerings.
As  the  second  largest  computing  company in the world and the largest global
supplier  of  computer  systems,  Compaq  delivers  customer  value  through
standards-based, partner-leveraged computing that features services, support and
market-segment  focused solutions, particularly in communications, manufacturing
and  finance.  Compaq is a strategic information technology partner to customers
of  all  sizes,  providing product offerings that range from handheld devices to
powerful  failsafe  computers.

                                       11
<PAGE>
     The  year  1998  was transitional for Compaq.  During the first half of the
year,  the  Company accelerated the implementation of the optimized distribution
model  towards  the  goal  of  moving from a build to stock operating model to a
build-to-order/configure-to-order  model.

     During  the  second  half  of the year Compaq undertook a major integration
effort  following  the  acquisition of Digital in June 1998.   These integration
efforts  included product migration strategies, sales force integration, service
organization  integration,  consolidation  of  duplicative  facilities, employee
separations  and  relocations,  and  the integration of the internal information
systems  of  the  combined  companies.

     The  Company  recorded  several  charges  in  connection  with  the Digital
acquisition  and  closing of certain Compaq facilities (see Notes 2 and 3 of the
Notes  to  Consolidated  Financial  Statements).  These  charges  included
approximately  $3.2 billion for the write-off of purchased in-process technology
and  $393  million  for  restructuring  and  asset impairment charges related to
Compaq  employee  separations  and  elimination  of  certain  Compaq facilities.

REVENUE

     Revenue  for  1998  increased  approximately $6.6 billion or 26.8% over the
prior  year  as compared with an increase of  $4.6 billion or 22.9% during 1997.
The  increase  in 1998 revenue was largely driven by the acquisition of Digital.
The  increase  in  1997  revenue  was  driven  primarily  by  internal  growth.

     Products  revenue  for  1998  increased approximately $3.3 billion or 13.5%
over the prior year as compared with an increase of $4.5 billion or 23.0% during
1997.  Products  revenue  in  1998 reflected a growth in worldwide unit sales of
25.1%,  compared  to  42.9% in 1997. Growth in options revenue was 15.9% in 1998
compared to 43.7% in 1997.  The increase in 1998 was primarily the result of the
Digital acquisition and strong growth in the consumer business.  Offsetting this
growth  was the expected short-term reduction in revenues relating to the impact
of  significant  pricing  and  promotional actions taken in conjunction with the
Company's  transition to the optimized distribution model, the implementation of
product  migration  strategies  for  Intel-based,  Digital-branded  personal
computers,  and  the realignment of the sales and marketing organizations of the
newly  combined  companies  throughout  the  world.

     Products  revenue  for North America in 1998 grew $310 million or 2.4% over
the  prior  year  as  compared  with an increase of $2.7 billion or 25.4% during
1997.  Products  revenue  in North America represented 49.0%, 54.3% and 53.3% of
total  products  revenue in 1998, 1997 and 1996, respectively.  Products revenue
growth  in  1998 related to the acquisition of Digital and strong year-over-year
growth  in  the  consumer  business, partially offset by a decline in commercial
products  revenue.  The  decline  in  commercial products revenue related to the
aggressive  price reductions and promotional activities implemented primarily in
North  America  in the first half of 1998 due to the transition to the optimized
distribution model, lower than expected sales out of the channel, and to respond
to  competitive  pricing conditions.  The third and fourth quarter revenues were
negatively  impacted  by  the implementation of product migration strategies and
the  realignment  of  the  sales and marketing organizations as described above.
Products  revenue growth in 1997 related to strong year-over-year growth in both
the  commercial  and  consumer  markets,  with  the  most significant commercial
product  growth  relating  to  enterprise  products,  most  notably  servers and
workstations.

     Products  revenue  for Europe, Middle East and Africa ("EMEA") in 1998 grew
$2.4  billion  or 30.2% over the prior year as compared with an increase of $1.4
billion or 21.6% during 1997.  Products revenue in EMEA represented 37.0%, 32.3%
and  32.6%  of  total  products  revenue  in  1998, 1997 and 1996, respectively.
Products  revenue  growth in EMEA in 1998 was the result of both the acquisition
of  Digital and strong year-over-year growth in consumer and commercial products
revenue, partially offset by more competitive pricing.  Products revenue in 1997
reflected  an  overall  improvement  in  market  share and strong year-over-year
revenue  growth  in  each  of  the  product areas, the most significant of which
related  to  enterprise  products.

                                       12
<PAGE>
     Services  revenue  for  1998  increased approximately $3.3 billion over the
prior  year  as  compared with an increase of $64 million during 1997.  Services
revenue  growth  for 1998 was almost entirely due to the acquisition of Digital.
With  the  acquisition  of  Digital,  Compaq  now  has  a  world  class services
organization  with  market-focused  solutions  and  high  availability  support,
particularly  in  the  communications,  manufacturing  and  finance  industries.
Services  revenue  for  1997 and 1996 related primarily to professional services
provided  by  Tandem.

     Services revenue for North America in 1998 grew $1.2 billion over the prior
year  as  compared with an increase of $4 million during 1997.  Services revenue
in North America represented 35.3%, 36.4% and 41.2% of total services revenue in
1998,  1997  and 1996, respectively. Services revenue for EMEA in 1998 grew $1.6
billion  over  the prior year as compared with an increase of $43 million during
1997.  Services  revenue  in  EMEA  represented 47.2%, 32.5%, and 26.9% of total
services  revenue  in  1998,  1997  and  1996,  respectively.

GROSS  MARGIN

     Gross  margin as a percentage of revenue was 23.1% in 1998, down from 27.5%
in  1997  and  25.8% in 1996.  Products gross margin as a percentage of products
revenue  was  21.9%, 27.5% and 25.7% for 1998, 1997 and 1996, respectively.  The
decrease  in  gross margin in 1998 resulted largely from significant pricing and
promotional  actions  taken  by  Compaq  primarily  in the North American market
during  the first and second quarters of 1998 to meet the goals of the Company's
optimized  distribution  model and to respond to competitive pricing conditions.
Gross margins improved during the third and fourth quarters, partially offset by
the  impacts  of  the  implementation  of  product  migration strategies and the
realignment  of  the  sales  and  marketing  operations.  The  increase in gross
margins  in  1997  primarily  resulted  from  a  higher  proportion  of sales of
enterprise  products  and  options,  production  and logistics cost savings, and
overall  asset  management  improvements.

     Products  gross margin as a percentage of products revenue in North America
was  21.5%, 27.4% and 26.6% for 1998, 1997 and 1996, respectively.  The decrease
in  1998  products  gross  margin resulted largely from the significant pricing,
promotional  and  other  actions taken by Compaq as noted above.  Products gross
margin  as  a  percentage of products revenue in EMEA was 26.3%, 27.7% and 26.1%
for 1998, 1997 and 1996, respectively.  The decrease in EMEA 1998 products gross
margin  was  primarily  related  to  the  Digital  product  integration.

     Services  gross margin as a percentage of services revenue was 31.6%, 27.9%
and 27.1% for 1998, 1997 and 1996, respectively.  The increase in services gross
margin  in  1998  is  primarily  attributable  to  the  acquisition  of Digital.

OPERATING  EXPENSES

Research  and  development  costs  increased  $536  million  or 65.6% in 1998 as
compared  to  1997,  primarily  due  to the acquisition of Digital. Research and
development  costs  increased $122 million or 17.6% in 1997 as compared to 1996.
Compaq  is  committed  to  maintaining  a  significant  level  of  research  and
development investment in support of its activities as a full-service enterprise
computing company, offering leadership technologies and products for the future.
In addition, Compaq spent approximately $3.2 billion in 1998 and $208 million in
1997  on  purchased  in-process  technology  in  connection with the Digital and
Microcom  acquisitions.

                                       13
<PAGE>
     Compaq's selling, general and administrative expense increased $2.0 billion
or  68.9%  in  1998  as  compared  to  1997, primarily due to the acquisition of
Digital.  Compaq's  selling,  general  and administrative expense increased $440
million  or  17.6%  in  1997  as  compared to 1996.  As a percentage of revenue,
selling,  general and administrative expense was 16.0%, 12.0% and 12.5% in 1998,
1997  and  1996,  respectively,  and  in absolute dollars was $5.0 billion, $2.9
billion,  and  $2.5 billion in 1998, 1997 and 1996, respectively.   The increase
as  a  percentage of revenue and absolute dollars in 1998 over 1997 is primarily
due  to  the  acquisition  of Digital and the support of significant new product
introductions,  expansion  into  new  markets and increases in our investment in
services.  In  the fourth quarter of 1998, operating expenses as a percentage of
revenue  began  to  decline due to implementation of the restructuring plans and
the  realization  of  synergies  for  the  combined  companies.  The decrease in
selling,  general  and administrative expense as a percentage of revenue in 1997
reflected  efforts  to  manage  operating expense growth relative to revenue and
gross  margin  levels.  The  increase  in  the  amount  of expense resulted from
domestic  and  international selling expense associated with higher unit volumes
as well as expense incurred in connection with the introduction of new products,
the entry into new markets, the expansion of distribution channels and a greater
emphasis  on  customer  service  and  technical  support.

PURCHASED  IN-PROCESS  TECHNOLOGY

     Upon  consummation  of  the  Digital  acquisition  in  June  1998,  Compaq
immediately  expensed  approximately  $3.2  billion  representing  purchased
in-process technology that had not yet reached technological feasibility and had
no  alternative  future  use  (see  Note  2  of  Notes to Consolidated Financial
Statements).  The  value  was  determined by estimating the costs to develop the
purchased  in-process  technology  into commercially viable products, estimating
the  resulting  net  cash flows from such projects, and discounting the net cash
flows  back  to  their  present values. The discount rate includes a factor that
takes into account the uncertainty surrounding the successful development of the
purchased  in-process  technology.

     The  resulting  net  cash  flows  from  such  projects were based on Compaq
management's  estimates  of  revenue,  cost  of  sales, research and development
costs,  selling,  general  and  administrative costs, and income taxes from such
projects.  These  estimates  were  based  on  the  following  assumptions:

-    The estimated  revenues  projected average compounded annual revenue growth
     rates of 8% to 39% during  1998-2001,  depending on the product areas.  For
     instance,  UNIX/OpenVMS  compounded annual growth rates were 8% and storage
     rates were 39%.  Estimated  total  revenue  from the  purchased  in-process
     product areas were expected to peak in the year 2001 and decline rapidly in
     2002-2005 as other new products  were  expected to enter the market.  These
     projections were based on Compaq management's  estimates of market size and
     growth  (supported  by  independent   market  data),   expected  trends  in
     technology  (such as new  families  of  products  in the  external  storage
     product   area)  and  the  nature  and  expected   timing  of  new  product
     introductions by Digital and its competitors. These estimates also included
     growth estimates related to Compaq utilizing  certain Digital  technologies
     in conjunction with Compaq's products,  Compaq's marketing and distribution
     of the resulting products through Compaq's resellers and Compaq's enhancing
     the  market's  response  to  Digital's  products by  providing  incremental
     financial support and stability.

                                       14
<PAGE>
-    The  estimated  cost of sales as a percentage of revenue was expected to be
     lower than Digital's on a stand-alone basis (66% in Digital's fiscal 1997),
     primarily  due to  Compaq's  expected  ability  to achieve  more  favorable
     pricing  from key  component  vendors and  production  efficiencies  due to
     economies  of scale  through  combined  operations.  As a  result  of these
     savings,  the  estimated  cost of  sales as a  percentage  of  revenue  was
     expected  to  decrease by 1% to 6% from  Digital's  historical  percentage,
     depending on the product areas.

     The combined  company was expected to benefit from more  favorable  pricing
     from key component vendors and production  efficiencies due to economies of
     scale.  As a result  of these  savings,  the  estimated  cost of sales as a
     percentage of revenues for the UNIX/OpenVMS  and storage  markets,  the two
     most significant  product areas of purchased  in-process  technology,  were
     expected to decrease up to 6% from Digital's historical percentages.

-    The estimated selling,  general and  administrative  costs were expected to
     more closely  approximate  Compaq's cost  structure  (approximately  12% of
     revenues  in  1997),   which  was  lower  than   Digital's  cost  structure
     (approximately 24% of revenues in Digital's fiscal 1997). Cost savings were
     expected to result primarily from the changes related to the  restructuring
     actions discussed in Note 3 of Notes to Consolidated  Financial Statements,
     as well as savings  resulting from the  distribution of Digital's  products
     through  Compaq's  resellers  (i.e.,  sales of higher volume  products with
     lower  direct  selling  costs) and  efficiencies  due to economies of scale
     through combined operations (i.e.,  consolidated  marketing and advertising
     programs).  These cost  savings were  expected to be realized  primarily in
     1999 and thereafter.  A significant  portion of these savings were expected
     to be achieved  through the adoption and execution of  restructuring  plans
     during 1998 and 1999.

     Discounting the net cash flows back to their present value was based on the
weighted  average  cost  of  capital  (WACC).  The WACC calculation produces the
average  required  rate  of  return of an investment in an operating enterprise,
based  on  various required rates of return from investments in various areas of
that  enterprise.  The  WACC  assumed  for  Compaq,  as  a  corporate  business
enterprise,  was 12% to 14%.  The discount rate used in discounting the net cash
flows  from purchased in-process technology ranged from 22% for UNIX/OpenVMS, NT
Systems  and  storage  to  40% for advanced development projects.  This discount
rate was higher than the WACC due to the inherent uncertainties in the estimates
described above including the uncertainty surrounding the successful development
of  the purchased in-process technology, the useful life of such technology, the
profitability  levels  of  such  technology and the uncertainty of technological
advances  that  were  unknown.

     If  these  projects  are  not  successfully  developed,  the  revenue  and
profitability  of  the  Company  may  be  adversely  affected in future periods.
Additionally, the value of other intangible assets acquired may become impaired.
Compaq began to benefit  from  the  purchased  in-process technology in 1998 and
is continuously monitoring  its  development projects.  Management believes that
the  assumptions  used  in  the  valuation  of  purchased  in-process technology
reasonably estimate the future benefits attributable to the purchased in-process
technology.  No assurance can be given that actual results will not deviate from
those  assumptions  in  future  periods.

     Similarly,  the  value  assigned  to  purchased  in-process  technology for
Microcom, Inc., which Compaq acquired in May 1997, was determined by identifying
research  projects  in  areas  including  modems, remote access technologies and
others,  for  which  technological  feasibility  had  not  been  established;
estimating  the  costs  to  develop  the  purchased  in-process  technology into
commercially  viable products;  estimating  the  resulting  cash flows from such
projects,  and discounting  the  net  cash flows back to the present value.  The
discount  rate  included  a  factor  which  took  into  account  the uncertainty
surrounding the successful  development  of the purchased in-process technology.

                                       15
<PAGE>
RESTRUCTURING  AND  ASSET  IMPAIRMENT  CHARGES

     In  June  1998,  Compaq's  management  approved  restructuring  plans which
included  initiatives to integrate operations of Compaq and Digital, consolidate
duplicative  facilities,  improve  service  delivery and reduce overhead.  Total
restructuring  costs  of  approximately $1.7 billion were recorded in the second
quarter  related  to these initiatives, $1.5 billion of which related to Digital
that  was  recorded  as a component of the preliminary purchase price allocation
and  $286  million  of  which  related to Compaq that was charged to operations.

     The  restructuring  costs  recorded  in  the  second  quarter  of 1998 were
comprised  of  the  following:

<TABLE>
<CAPTION>
(In millions)                       COMPAQ   DIGITAL   TOTAL
==================================  =======  ========  ======
<S>                                 <C>      <C>       <C>
Employee separations . . . . . . .  $   132  $    999  $1,131
Facility closure costs . . . . . .      142       272     414
Relocation . . . . . . . . . . . .        -        99      99
Other exit costs . . . . . . . . .       12        88     100
                                    -------  --------  ------
Total accrued restructuring costs.  $   286  $  1,458  $1,744
                                    =======  ========  ======
</TABLE>

     At  June  30,  1998,  the  Digital  restructuring  plans  were  based  on
management's  best  estimate of those costs based on available information.  The
restructuring  costs  accrued  in  June  1998  included estimates of the cost of
involuntary  employee  separation  benefits  related  to  approximately  19,700
employees  worldwide  (approximately  14,700  Digital employees and 5,000 Compaq
employees).  Employee  separation  benefits include severance, medical and other
benefits.  Employee  separations  affect the majority of business functions, job
classes  and geographies, with most of the reductions occurring in North America
and  Europe.  The  restructuring  plans  also  include costs associated with the
closure  of  13.2  million square feet of office, distribution and manufacturing
space,  principally  in  North  America and Europe.  Other accrued restructuring
costs  relate  to the relocation of Digital employees, with the majority of this
amount  attributable to relocations in North America and Europe, and the cost of
terminating  certain  Digital contractual obligations.  Compaq expects that most
of  the  restructuring  actions  will  be  completed  by  June  1999.

     In  the  fourth  quarter of 1998, Compaq adjusted the Digital restructuring
plan  which  resulted  in  a  reduction  of  $59  million  of  accrued  Digital
restructuring  costs.  This  reduction  was  recorded  as  an  adjustment to the
preliminary  purchase  price  allocation  during  the quarter ended December 31,
1998.  There was no adjustment to the Compaq restructuring plan.  The adjustment
to  the  Digital  restructuring  plan  included  a  $47  million net increase in
severance  costs.  This increase was primarily due to higher than expected costs
associated  with workforce reductions in Europe, partially offset by higher than
expected attrition rates.  While the total Digital employee separation target of
14,700  is expected to be achieved, Digital involuntary separations are expected
to decrease to approximately 12,400 as a result of the higher than expected rate
of  attrition.  The  higher  severance  costs  were  more  than  offset by lower
facility  closure  costs  of  $55  million, primarily due to lower than expected
costs  to  dispose  of  facilities.  In  addition,  the  estimate  of  employee
relocation  costs was reduced by $54 million due to a lower than expected number
of  employees  accepting  relocation  packages.

                                       16
<PAGE>
     The  accrued restructuring costs and amounts charged against the accrual as
of  December  31,  1998,  were  as  follows:

<TABLE>
<CAPTION>
                                     BEGINNING       CASH                    REMAINING
(In millions)                         ACCRUAL    EXPENDITURES    ADJUSTMENT    ACCRUAL
==================================  ==========  ==============  ============  ========
<S>                                 <C>         <C>             <C>           <C>
Employee separations . . . . . . .  $    1,131  $        (455)  $        47   $    723
Facility closure costs . . . . . .         414            (42)          (55)       317
Relocation . . . . . . . . . . . .          99             (2)          (54)        43
Other exit costs . . . . . . . . .         100            (76)            3         27
                                    ----------  --------------  ------------  --------
Total accrued restructuring costs.  $    1,744  $        (575)  $       (59)  $  1,110
                                    ==========  ==============  ============  ========
</TABLE>

     Cash  expenditures  are  not reflective of the actual costs incurred due to
the  impact of regulatory guidelines in certain countries relating to the timing
of  payment  of  severance  benefits  to affected employees.  As of December 31,
1998,  employee  separations due to restructuring actions totaled 10,542.  Total
severance  costs  related  to  these individuals, including the cash payments of
$455  million  already  made,  are  approximately  $570  million.  The total net
headcount  reduction  since  the  acquisition of Digital including attrition and
restructuring,  partially  offset by selective hiring, was approximately 12,800.

     During  1998,  Compaq  also recorded a $107 million charge related to asset
impairments.  The  asset  impairments resulted from the writedown to fair market
value,  less  costs to sell, of assets taken out of service and held for sale or
disposal.  The majority of this charge related to the impairment of  $74 million
of  intangible  assets  associated with the acquisition of a company during 1995
that  developed,  manufactured,  and  supplied  fast ethernet hubs, switches and
related  products.  In  May  1998, management decided to close the manufacturing
facility  and  abandoned  the technologies acquired through this acquisition and
discontinued  all  related  products.

     Compaq's selling, general and administrative costs are expected to decrease
in  the  future  through  the  continued  implementation  of  the  Company's
restructuring  plans.

OTHER  ITEMS

     In  1998, Compaq's other income was $69 million as compared to other income
of  $23  million in 1997 and other expense of $17 million in 1996.  The increase
in 1998 was primarily due to an increase in interest and dividend income related
to  greater  cash  and  short-term  investment  balances  prior  to  the Digital
acquisition  and a reduction in other expenses, partially offset by the minority
interest dividend paid to Digital preferred shareholders.  The increase in other
income  in  1997  was  primarily  driven by an increase in interest and dividend
income  related  to  greater  average  cash  and short-term investment balances,
partially  offset  by  interest  expense.

     The  translation  gains  and losses relating to the financial statements of
Compaq's  international  subsidiaries,  net  of  offsetting  gains  and  losses
associated  with hedging activities relating to the net monetary assets of these
subsidiaries,  are  included  in  other  income  and expense and resulted in net
losses  of  $25  million,  $27  million  and $11 million in 1998, 1997 and 1996,
respectively.

LIQUIDITY  AND  CAPITAL  RESOURCES

     Compaq's  cash,  cash  equivalents  and short-term investments decreased to
$4.1  billion at December 31, 1998, from $6.8 billion at December 31, 1997.  The
decrease  in  cash,  cash  equivalents  and  short-term  investments in 1998 was
primarily  due to the cash payment made to acquire Digital of approximately $4.5
billion  ($1.4  billion  net of cash acquired); the completion of a tender offer
for  the  Digital  notes  and  debentures  of $788 million; the repurchase of 11
million  shares  of  common stock for $384 million; cash spent for restructuring
activities  of  $575  million;  investments  made  in  1998  of $574 million, as
discussed  below;  cash dividends paid to Compaq shareholders of $95 million and
cash  used  for  the  purchase of property, plant and equipment of $600 million.

                                       17
<PAGE>
     Operating  activities  generated  $644 million in cash in 1998, compared to
$3.7  billion  in  1997 and $3.6 billion in 1996, respectively.  The decrease in
cash  generated  by  operating  activities  in  1998  compared  to  1997  was
significantly  affected  by  the  net  loss  in  1998  (offset  by the purchased
in-process  technology  acquired from Digital of approximately $3.2 billion) and
an  increase  in  accounts  receivable.  Accounts  receivable  increased to $7.0
billion  in  1998 from $2.9 billion in 1997, primarily due to the acquisition of
Digital.  From  time  to  time,  Compaq  may sell accounts receivable when it is
economically  beneficial.  Accounts  receivable  sold  at December 31, 1998 were
$217  million and $1.1 billion at December 31, 1997.  Inventory levels increased
to  $2.0  billion at December 31, 1998, compared to $1.6 billion at December 31,
1997,  due  to  the  acquisition  of  Digital and increased unit volumes.  These
increases were partially offset by changes in production planning as a result of
Compaq's  transition  to  the  optimized  distribution  model.  Inventory  turns
improved  to  13.4  in  1998  versus  12.6  in  1997.

     Cash  used for investments included a ten percent preferred equity position
in a business venture with Time Warner, Advance/Newhouse, MediaOne and Microsoft
for  approximately  $213  million.  The  venture  provides Internet services and
intends  to  accelerate  the delivery of broadband services over cable modems to
consumers  and  small  businesses  under  the  Road Runner brand.  Cash used for
investments also included the acquisition of a lease portfolio from G.E. Capital
for  approximately  $361  million.

     Compaq  plans  to  use  cash to develop the purchased in-process technology
related  to  the  Digital  acquisition  into commercially viable products.  This
primarily  consists  of  the completion of all planning, designing, prototyping,
high-volume manufacturing verification and testing activities that are necessary
to  establish  that a product can be produced to meet its design specifications,
including  functions, features and technical performance requirements.  Bringing
the  purchased in-process technology to market also includes developing firmware
and  diagnostic  software, device driver development, and testing the technology
for compatibility and interoperability with commercially viable products.  As of
the  date  of  acquisition,  the  estimated  costs to be incurred to develop the
purchased  in-process  technology  into  commercially  viable  products  totaled
approximately  $3.1  billion  in  the  aggregate  through  the  year  2005.  The
remainder to be spent is estimated to be:  $510 million in 1999, $660 million in
2000,  $630  million  in  2001, $520 million in 2002, $400 million in 2003, $210
million  in  2004  and  $90  million  in  2005.

     Future  uses  of  cash also include cash expenditures for currently planned
restructuring  activities  which  are  estimated  to  be  $1.1  billion; capital
expenditures for land, buildings and equipment in 1999 which are estimated to be
$875  million;  and  the  redemption  of  the  Series  A Digital Preferred Stock
expected  to  occur on April 1, 1999 for approximately $400 million plus accrued
dividends.

     Other  future  sources  and  uses  of  cash  include:

-    A  cash  tender  offer  in  January 1999 for all of the outstanding  shares
     of  common  stock  of  Shopping.com,  an  on-line  retailer  that  offers
     Internet shoppers an  array  of  consumer  products. In February the  offer
     was  successfully  concluded,  with 96% of the shares  tendered.  Compaq is
     proceeding  with the steps necessary   to complete  the  merger,  which  is
     anticipated  in  March.  The aggregate  purchase  price for Shopping.com is
     anticipated  to  be  approximately  $220 million.  Completion  of  the
     transaction  is  subject  to  certain  conditions,  including  clearance
     under  the  Hart-Scott-Rodino  Antitrust  Improvements  Act.

-    The  execution  of a definitive merger agreement with Zip2 Corporation, the
     leading  provider  of  Internet platform solutions for media companies  and
     local  e-commerce  merchants  in  February  1999.  The  aggregate  purchase
     price for Zip2 Corporation is anticipated to be approximately $300 million.
     Completion  of  the  transaction  is  subject  to  customary  conditions,
     including clearance under the Hart-Scott-Rodino Antitrust Improvements Act.

                                       18
<PAGE>
-    The  formation  of  the  AltaVista  Company in January 1999, a wholly owned
     subsidiary established  to  become  a  leading  Internet  site  for  search
     capabilities, localized information, e-commerce and e-services. Compaq will
     contribute  to  AltaVista  the AltaVista search  site  and  the  associated
     intellectual  property,  Shopping.com,  Zip2  Corporation,  and  certain
     additional  cash and assets.  Compaq anticipates offering a portion of  the
     AltaVista Company  to  the  public  in  1999.

     Compaq  currently  expects to fund expenditures for capital requirements as
well  as  liquidity  needs  from  a  combination  of  available  cash  balances,
internally  generated funds and financing arrangements. Compaq from time to time
may  borrow  funds  for  actual  or anticipated funding needs.  In October 1998,
Compaq entered into a one-year $1 billion unsecured revolving credit facility to
replace a similar facility that expired in September 1998.  Compaq also has a $3
billion  syndicated  credit  facility  that  expires in September 2002.  Both of
these  facilities  were  unused  at December 31, 1998.  Compaq has established a
commercial paper program, supported by the syndicated credit facility, which was
unused  at  December  31,  1998.  Compaq  believes  that these sources of credit
provide  sufficient  financial  flexibility to meet future funding requirements.
Compaq  continually  evaluates  the  need  to establish other sources of working
capital  and will pursue those it considers appropriate based upon its needs and
market  conditions.

FACTORS  THAT  MAY  AFFECT  FUTURE  RESULTS

     Compaq  participates in a highly volatile industry that is characterized by
fierce  industry-wide  competition  for  market  share.  Industry  participants
confront  aggressive  pricing  practices,  continually  changing customer demand
patterns, growing competition from well-capitalized high technology and consumer
electronics  companies,  and rapid technological developments carried out in the
midst of legal disputes over intellectual property rights and the application of
antitrust  laws.  In  accordance  with  the provisions of the Private Securities
Litigation Reform Act of 1995, the cautionary statements set forth below discuss
important  factors that could cause actual results to differ materially from the
projected  results  contained  in the forward-looking statements in this report.

     Market  Environment.  Compaq expects the personal computer market to expand
in  1999  in  line  with  third-party  research organizations' forecasts of unit
growth  of  15%.  The  Company  expects the enterprise market to expand with the
development  of  Internet and intranet enterprise applications and the corporate
MIS  migration  from  legacy  systems  to  client/server systems. This expansion
represents  an  opportunity  for  Compaq's  services  business  to  help  enable
customers  to  implement and manage these new environments. With its acquisition
of  Tandem  Computers  Incorporated  in  the  third  quarter  of  1997  and  the
acquisition  of  Digital  Equipment  Corporation  in the second quarter of 1998,
Compaq  confronts  a  challenge  in  building the high-end UNIX solutions market
while  continuing  to  advance  the  sphere of NT-based solutions to achieve the
lowest  cost  of  ownership  and  the highest computing value for its customers.
Although  Compaq  has  programs, products and services focused on meeting market
demand,  gaining market share profitably and maintaining gross margins, Compaq's
ability  to  achieve  these  goals  is  subject  to  the risks set forth in this
discussion.

     Competitive  Environment.  Competition  remains  fierce  in the information
technology  industry  with a large number of competitors vying for market share.
Competition  creates  an  aggressive pricing environment, which continues to put
pressure  on  gross  margins.  A  number  of  personal  computer  companies sell
directly to end users and, particularly in the U.S., direct sales have increased
as a percentage of the total personal computer market.  Compaq has established a
variety  of  programs  designed to increase its manufacturing, distribution, and
business process efficiencies to enable it to compete more effectively in its PC
business.  Compaq  sells  directly  to  end  users in its enterprise and service
businesses.  The  success  of its programs to increase its business efficiencies
depends  upon  Compaq's  ability to continue its successful working relationship
with  its  resellers,  to  maintain  and  increase  its  enterprise  and service
businesses,  to  both  predict  and  react  quickly  to  market responses by its
competitors,  and  to  continue the implementation of its optimized distribution
model,  the  goal  of  which  is  to  implement more efficient component supply,
manufacturing,  and  distribution  strategies  to increase overall efficiencies.

                                       19
<PAGE>
     Risks  of  Newly  Acquired  Businesses.  As  a result of the acquisition of
Digital,  Compaq  has,  and  will  continue to, expand its service offerings and
enterprise  solutions. This expansion includes a number of risks associated with
Digital's  business.  Compaq  believes that the Digital acquisition will enhance
its  operating  results,  but  as with any significant acquisition or merger, it
confronts  challenges  in  maintaining  key industry alliances and synchronizing
product  roadmaps  and  business processes and integrating logistics, marketing,
product  development,  services  and manufacturing operations to achieve greater
efficiencies.  While  Compaq  has  increased  its  service  revenue through this
acquisition, there are risks associated with the service business, which include
jeopardizing  Compaq's  long-term relationships with third party resellers while
it  provides  services  directly  to  end-user  customers.  Compaq has also made
certain  estimates  in  connection  with  the  value  of  purchased  in-process
technology.  If  these  projects  are  not  successfully  developed,  its future
revenue  and  profitability  may  be  adversely  affected and the value of other
intangibles  could  be  reduced.  This  risk  is  more  fully  discussed  under
"Purchased  In-Process  Technology."  Compaq  plans to continue to use strategic
acquisitions  and  mergers  to  assist  in  the  growth  of  its  business.

     Inventory.  In  the  event  of  a  drop  in  worldwide  demand for computer
products,  lower-than-anticipated  demand  for one or more of Compaq's products,
difficulties  in  managing  product transitions, or component pricing movements,
there  could  be  an  adverse  impact  on  inventory  levels,  cash, and related
profitability.

     Rapid  Technology  Cycles.  Compaq  believes  the  computer  industry  will
continue  to drive rapid technology cycles.  In planning product transitions, it
evaluates  the  speed at which customers are likely to switch to newer products.
The  contrast  between  prices  of  old  and  new  products, which is related to
component costs, is a critical variable in predicting customer decisions to move
to  the  next  generation of products. Because of the lead times associated with
its  volume  production,  should  Compaq  be unable to gauge the rate of product
transitions  accurately,  there  could be an adverse impact on inventory levels,
cash,  and  profitability.  In  addition,  as a result of the Tandem and Digital
acquisitions,  Compaq  is  engaged  in  direct  sales  of  computer systems with
software  developed  to meet customers' specific needs.  The long-term nature of
such  contracts  exposes Compaq to risks associated with changing customer needs
and  expectations.

     Product  Transitions.  In  each product cycle, Compaq confronts the risk of
delays  in production that could impact sales of newer products while it manages
the inventory of older products and facilitates the sale of older inventory held
by  resellers.  To  ease product transitions, Compaq carries out pricing actions
and marketing programs to increase sales by resellers. It provides currently for
estimated  product  returns  and  price protection that may occur under reseller
programs  and  under  floor  planning  arrangements  with  third-party  finance
companies.  Should  Compaq  be unable to sell the inventory of older products at
anticipated prices, should it not anticipate pricing actions that are necessary,
or  if  dealers  hold higher than expected amounts of inventory subject to price
protection  at  the time of planned price reductions, there could be a resulting
adverse  impact  on  revenues,  gross  margins,  and  profitability.

                                       20
<PAGE>
     Systems  Implementation.  Compaq  continues to focus on making business and
information  management  processes  more efficient in order to increase customer
satisfaction,  improve  productivity and lower costs. In the event of a delay in
implementing improvements, there could be an adverse impact on inventory levels,
cash  and  related  profitability.  In  connection with these efforts, Compaq is
moving  many  of its systems from a legacy environment of proprietary systems to
client-server  architectures  as well as integrating systems from newly acquired
businesses.  Integrating  the  systems  at  Digital  and Tandem complicates this
process.  Should the transition to new systems not occur in a smooth and orderly
manner,  Compaq  could experience disruptions in operations, which could have an
adverse  financial  impact.

     Technology  Standards  and  Key  Licenses.  Participants  in  the  computer
industry  generally  rely  on  the  creation  and  implementation  of technology
standards to win the broadest market acceptance for their products.  Compaq must
successfully  manage  and  participate  in  the  development  of standards while
continuing  to  differentiate  its  products  and services in a manner valued by
customers.  While industry participants generally accept, and may encourage, the
use  of  their  intellectual  property  by  third  parties  under  license  when
intellectual  property  owned by competitors or suppliers becomes accepted as an
industry  standard,  Compaq must obtain a license, purchase components utilizing
such  technology  from  the  owners  of  such  technology or their licensees, or
otherwise acquire rights to use such technology, which could result in increased
costs.  Compaq  has  entered  into  license  agreements  with  key  industry
participants.  There can be no assurance that it will be able to negotiate terms
that  give  it  a competitive market advantage under the license agreements that
are  necessary  to  operate  its  business  in  the  future.

     Production  Forecasts.  In  managing  production,  Compaq  must  forecast
customer  demand for its products. Should the Company underestimate the supplies
needed  to  meet  demand,  it could be unable to meet customer demand. Should it
overestimate the supplies needed to meet customer demand, cash and profitability
could  be  adversely affected. Many of the components used in Compaq's products,
particularly  microprocessors  and  memory, experience steep price declines over
their  product  lives.  If  the  Company  is  unable  to  manage  purchases  and
utilization  of  such  components  efficiently  to maintain low inventory levels
immediately  prior to major price declines, it could be unable to take immediate
advantage  of such declines to lower product costs, which could adversely affect
revenues  and  gross margins. Furthermore, should prices for components increase
unexpectedly,  Compaq's  gross  margin  could  be  adversely  affected.

     Credit Risks. Compaq's primary means of distribution is through third-party
resellers.  It  continually  monitors  and  manages  the  credit  it  extends to
resellers  and  attempts  to  limit  credit  risks  by  broadening  distribution
channels,  utilizing  certain  risk transfer arrangements and obtaining security
interests.  Compaq's  business could be adversely affected in the event that the
financial condition of third-party computer resellers erodes. Upon the financial
failure  of  a  major  reseller,  the  Company  could  experience disruptions in
distribution  as  well  as  a  loss associated with the unsecured portion of any
outstanding  accounts  receivable.  Geographic  expansion,  particularly
manufacturing  operations in developing countries, such as Brazil and China, and
the  expansion  of  sales into economically volatile areas such as Asia Pacific,
Latin America and other emerging markets, subject Compaq to a number of economic
and other risks, such as financial instability among resellers in these regions.
Compaq  generally  has experienced longer accounts receivable cycles in emerging
markets, in particular Asia Pacific and Latin America, when compared to U.S. and
European  markets.  In  addition,  geographic  expansion  subjects  Compaq  to
political  and financial instability of the countries into which Compaq expands,
including  currency  devaluation  and  interest  rate fluctuations.  The Company
continues  to evaluate business operations in these regions and attempts to take
measures  to  limit  risks  in  these  areas.

                                       21
<PAGE>
     Year  2000  Compliance.  The  following disclosure is a Year 2000 readiness
disclosure  statement  pursuant  to  the Year 2000 Readiness and Disclosure Act.

     Compaq's  Year  2000  program  is  designed  to minimize the possibility of
serious  Year  2000  interruptions.  Possible  Year  2000  worst  case scenarios
include  the  interruption of significant parts of Compaq's business as a result
of  critical  information  systems  failure  or  the  failure  of  suppliers,
distributors  or  customers.  Any  such interruption may have a material adverse
impact  on  future results. Since their possibility cannot be eliminated, Compaq
is  incorporating Year 2000 concerns into its contingency plans for dealing with
catastrophic  events.  In  addition,  Compaq  is  monitoring the need to develop
contingency  plans  to remediate information systems scheduled to be replaced by
systems  renewal efforts in case delays in the installation schedule for the new
systems  make  remediation  of  the  older  systems  necessary.

     In  1997,  Compaq established a task force to address its personal computer
product and customer concerns, and a separate task force to address its internal
information systems, including technology infrastructure and embedded technology
systems,  and the compliance of its suppliers and distributors.  In 1998, Compaq
integrated  the Tandem and Digital task forces with those of its own so that the
task  force  now  addresses the product and information systems and supplier and
distributor  concerns  for  the  entire  Company.

     With  respect  to  product readiness, the compliance definitions of Compaq,
Tandem  and  Digital  remain  in  effect  for  most  of the respective follow-on
products  of  each  company.  The readiness status of Compaq, Tandem and Digital
products  is  available  on  the  Compaq  Year  2000  Web  site  at
www.compaq.com/year2000.  In  addition  to  selling tested products, Compaq also
-----------------------
offers  a  range  of  Year  2000 readiness services. Because there is no uniform
definition  of Year 2000 "compliance" and because all customer situations cannot
be anticipated, particularly those involving other vendors' products, Compaq may
see  a  change in demand or an increase in warranty and other claims as a result
of  the  Year  2000  transition.  Such  events,  should they occur, could have a
material  adverse  impact  on  future  results.

     In  1998,  substantially  all  internal  information  systems  and  other
infrastructure  areas including communication systems, building security systems
and  embedded  technologies  in  areas  such  as  manufacturing  processes  were
identified,  assessed,  and categorized for Year 2000 readiness as Priority 1, 2
and  3,  with  1  being critical, 2 being intermediate and 3 being non-critical.
During  the  fourth  quarter  of  1998,  the  Year  2000  program  experienced a
significant  increase in work resulting from the Digital/Tandem integrations and
new business directions.  Additional resources have been added and the necessary
steps have been taken to maintain the following goals: Priority 1 and Priority 2
items  will be Year 2000 compliant by June 30, 1999, and Priority 3 items are to
be  ready  by December 31, 1999 or replaced or left undetermined.  As of the end
of the fourth quarter of 1998, Compaq completed remediation on approximately 40%
of the Priority 1 items, and expects to be approximately 75% complete by the end
of  March  1999.  Specific  contingency plans are being made with respect to any
Priority 1 listings which cannot be tested or determined to be compliant.  Also,
key suppliers and distributors have been identified and Compaq is in the process
of  communicating  with them about their Year 2000 readiness plans and progress.
In  each  of  these  areas,  various  testing  and  readiness  determination
methodologies  are  being  used,  based  on what is appropriate for each type of
system,  supplier  or  distributor.

     Coincident  with Year 2000 readiness efforts, Compaq is rapidly integrating
the  Digital  operations  worldwide.  This  includes rationalization of internal
systems, facilities and other infrastructure.  Compaq is also carrying out major
planned  enterprise-wide  internal  system  renewal efforts. These planned major
enterprise-wide  system  renewals  have  been  incorporated  into  the Year 2000
readiness  effort.  Installations  are scheduled through the end of 1999.  Based
on  Compaq's  ongoing  evaluation of internal information and other systems, the
integration of Digital operations, and system renewal roll-out schedules, Compaq
does not anticipate significant business interruption.  However, should business
interruption  occur, there could be a material adverse impact on future results.
With  respect  to suppliers and distributors, because Compaq's readiness depends
upon  their  cooperation  in  identifying,  disclosing and remediating problems,
failures  on  the  part  of  suppliers and distributors remain a possibility and
could  have  a  material  adverse  impact  on  future  results.

                                       22
<PAGE>
The  costs of the readiness program for products are primarily costs of existing
internal resources largely absorbed within existing engineering spending levels.
These  costs  were  incurred  primarily  in  1997 and earlier years and were not
broken  out  from  other  product engineering costs.  No future material product
readiness  costs  are  anticipated.  The  costs  of  the  readiness  program for
internal  information  and  other  systems  and suppliers and distributors are a
combination  of  incremental  external  spending  and  use  of existing internal
resources  and expertise.  Over the life of the internal readiness effort, these
costs  are  estimated  to  be  $130 million, of which approximately 45% has been
incurred  to  date.  The  costs  of  implementing enterprise-wide system renewal
efforts  are not included in this estimate.  Milestones and implementation dates
and  the  costs  of  Compaq's  Year 2000 readiness program are subject to change
based  on new circumstances that may arise or new information becoming available
that  may  change  underlying  assumptions  or  requirements.

     Euro Conversion.   Effective January 1, 1999, 11 of the 15 member countries
of  the European Union have adopted the euro as their common legal currency.  On
that  date,  the participating countries established fixed euro conversion rates
between  their  existing sovereign currencies and the euro.  The euro now trades
on  currency  exchanges  and  is  available  for  non-cash  transactions.  The
participating  countries now issue sovereign debt exclusively in euros, and have
redenominated  outstanding  sovereign  debt.  The  authority  to direct monetary
policy  for  the  participating  countries,  including money supply and official
interest  rates for the euro, is now exercised by the new European Central Bank.

In  1997,  Compaq  established  a  euro task force to address its PC product and
customer  concerns,  and  a  separate  task  force  to address Compaq's internal
information  systems.  Compaq hopes to achieve euro product readiness and enable
internal  information  systems  to  conduct  electronic transactions in the euro
within the first quarter of 1999.  The schedule and details of subsequent phases
of  internal  systems  readiness  is  under  review,  but  will  comply  with
implementation  schedules set by the European Commission.  We do not believe the
costs  of  the  overall  effort  will  have  a material adverse impact on future
results.  However,  since  all customer situations cannot be anticipated, Compaq
may  see  a  change  in  demand or an increase in warranty and other claims as a
result of the euro implementation.  Such events, should they occur, could have a
material adverse impact on future results.  Based on Compaq's ongoing evaluation
of  internal  information  systems, integration of Digital operations and system
renewal  roll-out  schedules,  Compaq  does  not anticipate significant business
interruption.  However,  should a significant business interruption occur, there
could  be  a  material  adverse  impact  on  future  results.  With  respect  to
compliance  by  suppliers  and  distributors,  failures remain a possibility and
could  have  a  material  adverse  impact  on  future  results.

     Milestones  and implementation dates of Compaq's euro readiness program are
subject  to  change based on new circumstances that may arise or new information
becoming  available,  which  changes  underlying  assumptions  or  requirements.

                                       23
<PAGE>
     Tax Rate.  Compaq currently has a 15% effective tax rate, before the effect
of  non-deductible purchased in-process technology and merger-related costs, and
expects  this  rate  will  increase  to 32% in 1999.  Compaq benefits from a tax
holiday  in Singapore that expires in 2001, with a potential extension to August
2004  if  certain  cumulative  investment  levels  and  other  conditions  are
maintained.  Compaq's  tax  rate  is  heavily  dependent  upon the proportion of
earnings  that  is derived from its Singaporean manufacturing subsidiary and its
ability to reinvest those earnings permanently outside the U.S.  If the earnings
of  this  subsidiary  as a percentage of Compaq's total earnings were to decline
significantly  from current levels, or should Compaq's ability to reinvest these
earnings  be  reduced, Compaq's effective tax rate would increase.  In addition,
should  Compaq's  intercompany  transfer pricing with respect to its Singaporean
manufacturing  subsidiary  require  significant  adjustment  due  to  audits  or
regulatory  changes,  Compaq's  overall  effective  tax  rate  could  increase.

     At  December  31, 1998 Compaq has recorded a net deferred tax asset of $2.9
billion.  Compaq  has determined it is more likely than not that this asset will
be  realized.  The  future  utilization  of  these  deferred  tax  assets may be
restricted  from future use by certain limitations imposed by taxing authorities
or by a lack of sufficient income generated in the taxing jurisdictions in which
the  asset arose.  If these limitations are significant, or if the circumstances
surrounding  the  expected  deductibility  of  the  items  change,  the ultimate
realization  of these assets may be adversely impacted and could have an adverse
impact  on  future  results.

     Currency  Fluctuations.  Compaq's  risks  associated  with  currency
fluctuations  are  discussed  in  Item  7A  below.

     Because  of  the  foregoing  factors,  as well as other variables affecting
Compaq's  operating results, past financial performance should not be considered
a  reliable  indicator  of  future  performance,  and  investors  should not use
historical  trends  to  anticipate  results  or  trends  in  future  periods.

ITEM  7A.  MARKET  RISKS

     Compaq  is  exposed  to  market  risks,  which  include changes in U.S. and
international  interest  rates  as well as changes in currency exchange rates as
measured  against  the  U.S.  dollar and each other. It attempts to reduce these
risks  by  utilizing  financial  instruments, including derivative transactions,
pursuant  to  Company  policies.

     Compaq  uses  market  valuations  and  value-at-risk  valuation  methods to
preliminarily  assess  market  risk  of its financial instruments and derivative
portfolios.  It uses J.P. Morgan's RiskMetrics  to estimate the value-at-risk of
its  financial  instruments  and  derivative  portfolios  based  on estimates of
volatility  and  correlation  of  market  factors  drawn  from  J.P.  Morgan's
RiskMetrics  data sets for the dates calculated.  RiskMetrics  defines loss as a
reduction in the value of a portfolio in the event of adverse market conditions,
using  a  predetermined  confidence  interval,  over a specified period of time.
Compaq  included  all fixed income investments and foreign exchange contracts in
the  value-at-risk  calculation.  See  Note  1  and  Note  13  in  the  Notes to
Consolidated  Financial  Statements  for  further  information  regarding  these
instruments.  The  holding  period for these instruments varies from two days to
nine  months.  The  measured  value-at-risk  from  holding  derivative and other
financial  instruments,  using a 95% confidence level and assuming normal market
conditions  during  the periods ended December 31, 1998 and 1997 was immaterial.

                                       24
<PAGE>
     The  value  of the U.S. dollar affects Compaq's financial results.  Changes
in  exchange  rates  may  positively  or negatively affect Compaq's revenues (as
expressed  in  U.S.  dollars),  gross  margins, operating expenses, and retained
earnings.  Compaq  engages  in  hedging  programs  aimed at limiting in part the
impact  of  currency  fluctuations.  Using primarily forward exchange contracts,
Compaq  hedges  those  assets and liabilities that, when remeasured according to
generally  accepted  accounting  principles,  impact  the income statement.  For
certain  markets, particularly Latin America, Compaq has determined that ongoing
hedging of non-U.S. dollar net monetary assets is not cost effective and instead
attempts  to minimize currency exposure risk through working capital management.
There  can  be no assurance that such an approach will be successful, especially
in  the  event  of  a  significant  and  sudden  decline  in  the value of local
currencies.  From  time  to  time,  Compaq  purchases  foreign  currency  option
contracts  as  well  as short-term forward exchange contracts to protect against
currency  exchange  risks  associated  with  the anticipated revenue of Compaq's
international  marketing  subsidiaries,  with the exception of Latin America and
certain other subsidiaries that reside in countries in which such activity would
not  be  cost  effective  or  local  regulations preclude this type of activity.
These  hedging  activities  provide  only  limited  protection  against currency
exchange  risks. Factors that could impact the effectiveness of Compaq's hedging
programs  include  accuracy  of  sales  forecasts,  volatility  of  the currency
markets,  and  availability  of hedging instruments. All currency contracts that
are  entered  into  by Compaq are components of hedging programs and are entered
into  for  the  sole  purpose  of  hedging  an  existing or anticipated currency
exposure,  not  for  speculation.  Although  Compaq  maintains these programs to
reduce  the  impact  of changes in currency exchange rates, when the U.S. dollar
sustains  a  strengthening  position  against  currencies  in which Compaq sells
products  and  services or a weakening exchange rate against currencies in which
Compaq  incurs  costs,  Compaq's  revenues  or  costs  are  adversely  affected.

ITEM  8:  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

<TABLE>
<CAPTION>
Index  to  Consolidated  Financial  Statements

Financial Statements:                                                             Page
                                                                                  ----
<S>                                                                               <C>
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . .    26
Consolidated Balance Sheet at December 31, 1998 and 1997 . . . . . . . . . . . .    27
Consolidated Statement of Income for the three years ended December 31, 1998 . .    28
Consolidated Statement of Cash Flows for the three years ended December 31, 1998    29
Consolidated Statement of Stockholders' Equity for the three years ended
   December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    31
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . .    32

Financial Statement Schedule:
  For the three years ended December 31, 1998
    Schedule II - Valuation and Qualifying Accounts. . . . . . . . . . . . . . .    63
</TABLE>

ITEM  9:  DISAGREEMENTS  ON  ACCOUNTING  AND  FINANCIAL  DISCLOSURE

     None

                                       25
<PAGE>
REPORT  OF  INDEPENDENT  ACCOUNTANTS

To  the  Stockholders  and  Board  of  Directors  of
Compaq  Computer  Corporation

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Compaq
Computer Corporation and its subsidiaries at December 31, 1998 and 1997, and the
results  of their operations and their cash flows for each of the three years in
the  period  ended  December  31,  1998,  in  conformity with generally accepted
accounting  principles.  In  addition,  in  our opinion, the financial statement
schedule  listed  in  the  accompanying  index, presents fairly, in all material
respects,  the  information  set forth therein when read in conjunction with the
related  consolidated  financial statements.  These financial statements and the
financial statement schedule are the responsibility of the Company's management;
our  responsibility  is  to express an opinion on these financial statements and
the financial statement schedule based on our audits. We conducted our audits of
these  statements in accordance with generally accepted auditing standards which
require  that we plan and perform the audit to obtain reasonable assurance about
whether  the  financial  statements  are free of material misstatement. An audit
includes  examining,  on  a  test  basis,  evidence  supporting  the amounts and
disclosures  in  the  financial  statements, assessing the accounting principles
used  and  significant  estimates made by management, and evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  the  opinion  expressed  above.



PRICEWATERHOUSECOOPERS  LLP

Houston,  Texas
January  26,  1999,
except  as  to  Note  14,  which  is  as  of  February  16,  1999

                                       26
<PAGE>
<TABLE>
<CAPTION>
                                 COMPAQ COMPUTER CORPORATION
                                 CONSOLIDATED BALANCE SHEET

December 31 (In millions, except par value)                                    1998     1997
===========================================================================  ========  =======
<S>                                                                          <C>       <C>
ASSETS

Current assets:
 Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . .  $ 4,091   $ 6,418
 Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . .        -       344
 Accounts receivable, less allowance of $318 and $243 . . . . . . . . . . .    6,998     2,891
 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    2,005     1,570
 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .    1,602       595
 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .      471       199
                                                                             --------  -------
   Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . .   15,167    12,017
Property, plant and equipment, less accumulated depreciation. . . . . . . .    2,902     1,985
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .    1,341         -
Intangible and other assets . . . . . . . . . . . . . . . . . . . . . . . .    3,641       629
                                                                             --------  -------
                                                                             $23,051   $14,631
                                                                             ========  =======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 4,237   $ 2,837
 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . .      282       195
 Accrued restructuring costs. . . . . . . . . . . . . . . . . . . . . . . .    1,110         -
 Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . .    5,104     2,170
                                                                             --------  -------
   Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . .   10,733     5,202
                                                                             --------  -------
Postretirement and other postemployment benefits. . . . . . . . . . . . . .      545         -
                                                                             --------  -------
Commitments and contingencies (Note 13)
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      422         -
                                                                             --------  -------
Stockholders' equity:
 Preferred stock, $.01 par value
   (authorized: 10 million shares; issued: none)
 Common stock and capital in excess of $.01 par value
   (authorized: 3 billion shares; issued and outstanding:
   1,698 and 1,687 million shares, respectively, at December 31, 1998; and
   1,519 million shares issued and outstanding at December 31, 1997). . . .    7,270     2,096
 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .    4,465     7,333
 Treasury stock (at cost) . . . . . . . . . . . . . . . . . . . . . . . . .     (384)        -
                                                                             --------  -------
   Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . .   11,351     9,429
                                                                             --------  -------
                                                                             $23,051   $14,631
                                                                             ========  =======
</TABLE>
The accompanying notes are an integral part of these financial statements.

                                       27
<PAGE>
<TABLE>
<CAPTION>
                                        COMPAQ COMPUTER CORPORATION
                                     CONSOLIDATED STATEMENT OF INCOME

Year ended December 31 (In millions, except per share amounts)                  1998       1997     1996
===========================================================================  ==========  ========  =======
<S>                                                                          <C>         <C>       <C>
Revenue:
 Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  27,372   $24,122   $19,611
 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      3,797       462       398
                                                                             ----------  --------  -------
 Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     31,169    24,584    20,009
                                                                             ----------  --------  -------

Cost of sales:
 Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     21,383    17,500    14,565
 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      2,597       333       290
                                                                             ----------  --------  -------
   Total cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . .     23,980    17,833    14,855
                                                                             ----------  --------  -------

Selling, general and administrative expense . . . . . . . . . . . . . . . .      4,978     2,947     2,507
Research and development costs. . . . . . . . . . . . . . . . . . . . . . .      1,353       817       695
Purchased in-process technology . . . . . . . . . . . . . . . . . . . . . .      3,196       208         -
Restructuring and asset impairment charges. . . . . . . . . . . . . . . . .        393         -        52
Merger-related costs. . . . . . . . . . . . . . . . . . . . . . . . . . . .          -        44         -
Other income and expense, net . . . . . . . . . . . . . . . . . . . . . . .        (69)      (23)       17
                                                                             ----------  --------  -------
                                                                                 9,851     3,993     3,271
                                                                             ----------  --------  -------
Income (loss) before provision for income taxes . . . . . . . . . . . . . .     (2,662)    2,758     1,883
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . .         81       903       565
                                                                             ----------  --------  -------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  (2,743)  $ 1,855   $ 1,318
                                                                             ==========  ========  =======

Earnings (loss) per common share:
 Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   (1.71)  $   1.23  $  0.90
 Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   (1.71)  $   1.19  $  0.87

Shares used in computing earnings (loss) per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,608      1,505    1,472
 Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,608      1,564    1,516
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                       28
<PAGE>
<TABLE>
<CAPTION>
                                          COMPAQ COMPUTER CORPORATION
                                      CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended December 31 (In millions)                                            1998        1997        1996
===========================================================================  ==========  ==========  ==========
<S>                                                                          <C>         <C>         <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  (2,743)  $    1,855  $    1,318
 Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
 Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . .        893         545         483
 Provision for bad debts. . . . . . . . . . . . . . . . . . . . . . . . . .         61          19         160
 Purchased in-process technology. . . . . . . . . . . . . . . . . . . . . .      3,196         208           -
 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .       (130)        202        (405)
 Restructuring and asset impairment charges . . . . . . . . . . . . . . . .        393           -          52
 Changes in operating assets and liabilities, net of effects of
   purchased businesses:
 Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . .     (1,736)        614        (228)
 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        857        (335)      1,014
 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .        114          63          34
 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        589         756         562
 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . .       (265)       (319)        131
 Accrued restructuring costs. . . . . . . . . . . . . . . . . . . . . . . .       (575)          -           -
 Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . .        (10)         80         445
                                                                             ----------  ----------  ----------
 Net cash provided by operating activities. . . . . . . . . . . . . . . . .        644       3,688       3,566
                                                                             ----------  ----------  ----------
Cash flows from investing activities:
Purchases of property, plant and equipment, net . . . . . . . . . . . . . .       (600)       (729)       (484)
Purchases of short-term investments . . . . . . . . . . . . . . . . . . . .        (77)     (2,405)     (1,401)
Proceeds from sales of short-term investments . . . . . . . . . . . . . . .        421       3,134         328
Acquisition of businesses, net of cash acquired . . . . . . . . . . . . . .     (1,413)       (268)        (22)
Acquisition of lease portfolio. . . . . . . . . . . . . . . . . . . . . . .       (361)          -           -
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (437)        (31)        (75)
                                                                             ----------  ----------  ----------
 Net cash used in investing activities. . . . . . . . . . . . . . . . . . .     (2,467)       (299)     (1,654)
                                                                             ----------  ----------  ----------
Cash flows from financing activities:
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . .       (788)       (293)          -
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . .       (384)          -           -
Issuance of common stock pursuant to stock option plans . . . . . . . . . .        407         188         131
Tax benefit associated with stock options . . . . . . . . . . . . . . . . .        234         156          91
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (95)          -           -
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (18)        (37)          -
                                                                             ----------  ----------  ----------
 Net cash provided by (used in) financing activities. . . . . . . . . . . .       (644)         14         222
                                                                             ----------  ----------  ----------
Effect of exchange rate changes on cash and cash equivalents. . . . . . . .        140           7          21
                                                                             ----------  ----------  ----------
 Net (decrease) increase in cash and cash equivalents . . . . . . . . . . .     (2,327)      3,410       2,155
                                                                             ----------  ----------  ----------
Cash and cash equivalents at the beginning of the year. . . . . . . . . . .      6,418       3,008         853
                                                                             ----------  ----------  ----------
Cash and cash equivalents at the end of the year. . . . . . . . . . . . . .  $   4,091   $   6,418   $   3,008
                                                                             ==========  ==========  ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                       29
<PAGE>
<TABLE>
<CAPTION>
                           COMPAQ COMPUTER CORPORATION
                CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

SUPPLEMENTAL CASH FLOW INFORMATION
Year ended December 31 (In millions)   1998   1997   1996
====================================  =====  =====  =====
<S>                                   <C>    <C>    <C>
Interest paid. . . . . . . . . . . .  $ 175  $ 164  $ 106
Income taxes paid. . . . . . . . . .  $ 259  $ 804  $ 953
</TABLE>


<TABLE>
<CAPTION>
Year ended December 31 (In millions)                         1998      1997
========================================================  ==========  =======
<S>                                                       <C>         <C>
Acquisitions (Note 2)
Fair value of:
 Assets acquired. . . . . . . . . .  . . . . . . . . . .  $  16,124   $  362
 Liabilities assumed. . . . . . . . .  . . . . . . . . .     (7,109)     (74)
 Stock issued . . . . . . . . . . . . . . . .  . . . . .     (4,284)       -
 Options issued . . . . . . . . . . . . . . . . . . . .        (249)     (10)
                                                          ----------  -------
Cash paid . . . . . . . . . . . . . . . . . . . . .  . .      4,482      278
Less cash acquired. . . . . . . . . . . . .. . . . . . .     (3,069)     (10)
                                                          ----------  -------
Net cash paid for acquisitions. . . . . . . . . . .  .    $   1,413   $  268
                                                          ==========  =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                       30
<PAGE>
<TABLE>
<CAPTION>
                                       COMPAQ COMPUTER CORPORATION
                              CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

Year ended December 31 (In millions)                                            1998     1997     1996
===========================================================================  ==========  =======  =======
<S>                                                                          <C>         <C>      <C>
SHARES OF COMMON STOCK ISSUED:
 Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,519    1,492    1,458
   Issuance pursuant to stock option plans. . . . . . . . . . . . . . . . .         36       30       34
   Issuance of stock pursuant to acquisition. . . . . . . . . . . . . . . .        141        -        -
   Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2       (3)       -
                                                                             ----------  -------  -------
 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,698    1,519    1,492
                                                                             ==========  =======  =======

COMMON STOCK PAR VALUE AND CAPITAL IN EXCESS OF PAR:
 Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   2,096   $1,779   $1,543
   Issuance pursuant to stock option plans. . . . . . . . . . . . . . . . .        407      188      131
   Issuance of stock pursuant to acquisition. . . . . . . . . . . . . . . .      4,284        -        -
   Issuance of stock options pursuant to acquisition. . . . . . . . . . . .        249       10        -
   Tax benefit associated with stock options. . . . . . . . . . . . . . . .        234      156       91
   Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          -      (37)      14
                                                                             ----------  -------  -------
 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      7,270    2,096    1,779
                                                                             ----------  -------  -------

RETAINED EARNINGS:
 Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .      7,333    5,511    4,214
   Comprehensive income (loss)
     Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . .     (2,743)   1,855    1,318
     Other comprehensive income (loss). . . . . . . . . . . . . . . . . . .        (18)     (22)     (21)
                                                                             ----------  -------  -------
   Total comprehensive income (loss). . . . . . . . . . . . . . . . . . . .     (2,761)   1,833    1,297
                                                                             ----------  -------  -------
   Change in Tandem fiscal period . . . . . . . . . . . . . . . . . . . . .          -       12        -
   Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (107)     (23)       -
                                                                             ----------  -------  -------
 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      4,465    7,333    5,511
                                                                             ----------  -------  -------

TREASURY STOCK:
 Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .          -        -        -
   Repurchase of treasury stock, at cost. . . . . . . . . . . . . . . . . .       (384)       -        -
                                                                             ----------  -------  -------
 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (384)       -        -
                                                                             ----------  -------  -------

TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . . . . . . . .  $  11,351   $9,429   $7,290
                                                                             ==========  =======  =======

ACCUMULATED OTHER COMPREHENSIVE INCOME:
 Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     (18)  $    4   $   25
   Other comprehensive income (loss)
     Foreign currency translations. . . . . . . . . . . . . . . . . . . . .         20      (22)     (21)
     Minimum pension liability adjustment . . . . . . . . . . . . . . . . .        (38)       -        -
                                                                             ----------  -------  -------
   Total other comprehensive income (loss). . . . . . . . . . . . . . . . .        (18)     (22)     (21)
                                                                             ----------  -------  -------
 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     (36)  $  (18)  $    4
                                                                             ==========  =======  =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                       31
<PAGE>
NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS

NOTE  1.  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS.  Founded in 1982, Compaq Computer Corporation ("Compaq"
or  the  "Company")  is a global information technology company. Compaq develops
and  markets  hardware,  software,  solutions and services, including enterprise
computing  solutions, fault-tolerant business-critical solutions, networking and
communication  products,  commercial  desktop and portable products and consumer
PCs.  Compaq  products  and services are sold in more than 100 countries through
subsidiaries  and  a  network  of  authorized  Compaq marketing partners. Compaq
markets  its  products  and  services  primarily to customers from the business,
home,  government,  and  education  sectors.

     Compaq  completed  the  acquisition  of  Digital  Equipment  Corporation
("Digital") in June 1998.  This acquisition was accounted for under the purchase
method  of  accounting.  Compaq  completed  the  acquisition of Tandem Computers
Incorporated ("Tandem") in August 1997.  This acquisition was accounted for as a
pooling  of interests, consequently, the financial information for 1997 and 1996
has  been  restated  to  reflect  the  merger  with  Tandem.

PRINCIPLES  OF CONSOLIDATION.  The consolidated financial statements include the
accounts  of  Compaq  and  its  subsidiaries.  All  significant  intercompany
transactions  and  balances  have  been  eliminated.

USE  OF  ESTIMATES.  The  preparation of financial statements in conformity with
generally  accepted  accounting principles requires management to make estimates
and  judgments that affect the reported amounts of assets, liabilities, revenues
and  expenses,  and  related  disclosure  of  contingent assets and liabilities.
Actual  results  could  differ  from  those  estimates.

CASH  EQUIVALENTS  AND  SHORT-TERM INVESTMENTS.  Cash equivalents include highly
liquid  temporary  cash investments having maturities of three months or less at
date  of  acquisition.  Short-term  investments include certificate of deposits,
commercial  paper  and  other  investments  having  maturities longer than three
months at date of acquisition. For reporting purposes, such cash equivalents and
short-term  investments  are  stated  at  cost  plus  accrued  interest  which
approximates  fair  value.

INVENTORIES.  Inventories  are stated at the lower of cost or market, cost being
determined  on  a  first-in,  first-out  basis.

PROPERTY, PLANT AND EQUIPMENT.  Property, plant and equipment are stated at cost
less  accumulated depreciation. Major renewals and improvements are capitalized;
minor  replacements,  maintenance and repairs are charged to current operations.
Depreciation is computed by applying the straight-line method over the estimated
useful lives of the buildings (10-30 years) and by applying the straight-line or
accelerated  methods  over the estimated useful lives of machinery and equipment
(two to ten years). Leasehold improvements are amortized over the shorter of the
useful  life  of  the  improvement  or  the  life  of  the  related  lease.

LONG-LIVED  ASSETS.  Compaq  reviews  for  the  impairment  of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
an  asset  may  not be recoverable.  An impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset and its
eventual  disposition  is  less  than  its  carrying  amount.

                                       32
<PAGE>
INTANGIBLE  ASSETS.  Intangible  assets  primarily  relate  to  the value of the
installed  customer  base,  proven  research  and development, and trademarks of
companies  acquired.  The  cost  of the installed customer base, proven research
and  development  and  trademarks is amortized on a straight-line basis over the
estimated  lives  of  15  years,  5  years  and  5  years,  respectively.

REVENUE  RECOGNITION.  Compaq  recognizes  products revenue at the time products
are  shipped to its customers. Provision is made at the time the related revenue
is recognized for estimated product returns and price protection which may occur
under programs Compaq has with its customers.  Compaq provides for the estimated
cost  of  post-sales  support  and  product warranties upon shipment. When other
significant  obligations  remain  after  products  are  delivered,  revenue  is
recognized  only  after  such  obligations  are  fulfilled.  Services revenue is
recognized ratably over the contractual period or as the services are performed.

FINANCING TRANSACTIONS.  Compaq offers customer financing to assist customers in
their  acquisition  of  the  Company's  products through its leasing subsidiary,
Compaq  Capital.  At  the  time  a  financing  transaction is consummated, which
qualifies  as either a sales-type or direct financing lease, the Company records
the  total  receivable,  unearned income and the estimated residual value of the
equipment.  Unearned  income  is recognized as finance income using the interest
method  over  the  term of the lease.  Lease receivables of $271 million, net of
unearned  income,  due  within  the  next twelve months are included in accounts
receivable.  The  non-current  portion  of $274 million of lease receivables and
the  residual  value,  net  of  unearned income, are included in long-term other
assets.  Leases  not  qualifying as either sales-type or direct financing leases
are  accounted for as operating leases.  The underlying equipment is depreciated
on  a  straight-line  basis  over the initial term of the lease to its estimated
residual  value.  Rental  equipment  of  $166  million,  net  of  accumulated
depreciation,  is  included  in  property,  plant  and  equipment.

ADVERTISING  COSTS.  Advertising  costs are charged to operations when incurred.
The cost of direct-response advertising is not significant. Advertising expenses
for  1998,  1997  and  1996  were  $336  million, $223 million and $175 million,
respectively.

FOREIGN  CURRENCY.  Compaq's  foreign subsidiaries (other than those acquired in
the  merger  with  Tandem)  have  the U.S. dollar designated as their functional
currency.  Financial  statements of these foreign subsidiaries are translated to
U.S.  dollars  for  consolidation  purposes  using current rates of exchange for
monetary assets and liabilities and historical rates of exchange for nonmonetary
assets  and related elements of expense.  Revenue and other expense elements are
translated  at  rates  that  approximate  the rates in effect on the transaction
dates.  Translation  gains  and  losses  are  included  in Compaq's Consolidated
Statement  of  Income.  The  foreign  subsidiaries  acquired  in the merger with
Tandem  designated  the  local currency as their functional currency and related
cumulative  translation  adjustments  have  not  been  significant.

INCOME  TAXES.  The  provision  for income taxes is computed based on the pretax
income  (loss)  included  in the Consolidated Statement of Income. The asset and
liability  approach is used to recognize deferred tax assets and liabilities for
the  expected  future  tax  consequences  of  temporary  differences between the
carrying  amounts  and  the  tax  bases  of  assets  and  liabilities.

EARNINGS  PER  COMMON  SHARE. Basic earnings (loss) per common share is computed
using  the  weighted  average  number  of  common  shares outstanding during the
period.  Diluted  earnings per common share is computed using the combination of
dilutive  common  share  equivalents  and  the weighted average number of common
shares  outstanding  during the period.  Incremental shares of 59 million and 44
million  in 1997 and 1996, respectively, were used in the calculation of diluted
earnings  per common share. Diluted loss per common share for 1998 is based only
on  the  weighted average number of common shares outstanding during the period,
as  the  inclusion  of  60  million  common  share  equivalents  would have been
antidilutive.

                                       33
<PAGE>
     Stock  options  to  purchase 13 million, 9 million and 28 million shares of
common  stock  in  1998,  1997  and 1996, respectively, were outstanding but not
included  in the computation of diluted earnings (loss) per common share because
the  option  exercise  price  was  greater  than the average market price of the
common  shares.

STOCK-BASED  COMPENSATION.  Compaq  measures  compensation  expense  for  its
stock-based employee compensation plans using the intrinsic value method and has
provided  in Note 8 the pro forma disclosures of the effect on net income (loss)
and  earnings (loss) per common share as if the fair value-based method had been
applied  in  measuring  compensation  expense.

COMPREHENSIVE  INCOME.  Other comprehensive income refers to revenues, expenses,
gains  and  losses  that  under  generally  accepted  accounting  principles are
included  in  comprehensive  income  but  are  excluded from net income as these
amounts  are  recorded  directly  as  an  adjustment  to  stockholders'  equity.
Compaq's  other  comprehensive income is primarily comprised of foreign currency
translation  adjustments  and  adjustments  made to recognize additional minimum
liabilities  associated  with  the Company's defined benefit pension plans.  The
tax  benefit  or  expense,  as  well  as  any  reclassifications  related to the
components  of  other  comprehensive  income  were  not  significant.

SEGMENT  DATA.   During  1998,  Compaq adopted Statement of Financial Accounting
Standards  No.  131 ("FAS 131"), Disclosures about Segments of an Enterprise and
Related  Information.  FAS  131  supersedes  FAS  14,  Financial  Reporting  for
Segments  of  a  Business  Enterprise, replacing the "industry segment" approach
with the "management" approach.  The management approach designates the internal
reporting  that  is  used  by  management  for  making  operating  decisions and
assessing  performance  as the source of the Company's reportable segments.  FAS
131  also requires disclosures about products and services, geographic areas and
major  customers.  The  adoption of FAS 131 did not affect results of operations
or  the  financial  position  of Compaq but did affect the disclosure of segment
information  (Note  12).

RECENT  PRONOUNCEMENTS.  In  June 1998, the Financial Accounting Standards Board
issued  Statement  of  Financial  Accounting  Standards  No.  133  ("FAS  133"),
Accounting  for  Derivative  Instruments  and  Hedging  Activities.  FAS  133 is
effective for transactions entered into after January 1, 2000.  FAS 133 requires
that  all derivative instruments be recorded on the balance sheet at fair value.
Changes  in  the  fair  value of derivatives are recorded each period in current
earnings  or  other  comprehensive  income, depending on whether a derivative is
designated  as  part  of  a hedge transaction and the type of hedge transaction.
The ineffective portion of all hedges will be recognized in earnings.  Compaq is
in  the process of determining the impact that the adoption of FAS 133 will have
on  its  results  of  operations  and  financial  position.

RECLASSIFICATIONS.  Certain prior year amounts have been reclassified to conform
to  the  1998  presentation.

                                       34
<PAGE>
NOTE  2.  ACQUISITIONS

     On  June  11, 1998, Compaq consummated its acquisition of Digital.  Digital
was  an  industry  leader  in  implementing  and  supporting  networked business
solutions  in  multi-vendor environments based on high performance platforms and
had  an  established  global  service  and support team.  The aggregate purchase
price  of  $9.1  billion  consisted  of  approximately $4.5 billion in cash, the
issuance  of  approximately  141 million shares of Compaq common stock valued at
approximately  $4.3 billion and the issuance of approximately 25 million options
to  purchase Compaq common stock valued at approximately $249 million.  The cash
component  of  the  purchase  price was paid through the use of Compaq's general
corporate  funds.  The  results  of operations of Digital and the estimated fair
value  of  the  assets acquired and liabilities assumed are included in Compaq's
financial  statements  from  the  date  of  acquisition.

The  purchase  price  was  preliminarily  allocated  to  the assets acquired and
liabilities assumed based on Compaq's estimates of fair value at the acquisition
date.  In the fourth quarter of 1998, Compaq adjusted the fair values of certain
assets  acquired  and  liabilities  assumed  based  on the receipt of additional
information  which  was  outstanding  as  of the date of the acquisition.  These
adjustments  did  not  have  a  material  impact  on  the initial purchase price
allocation.  The  fair value assigned to intangible assets acquired was based on
a  valuation  prepared  by  an  independent third-party appraisal company of the
purchased  in-process  technology,  proven  research  and development, installed
customer  base and trademarks of Digital.  The amounts allocated to tangible and
intangible  assets acquired less liabilities assumed exceeded the purchase price
by  approximately  $4.1  billion.  This excess value over the purchase price was
allocated  to  reduce  the  values  assigned  to  long-term assets and purchased
in-process technology in determining their ultimate fair values.  As a result of
the  change  in  fair values of the long-term assets, the deferred tax liability
associated  with  these  assets  was  also  adjusted.

     The  following table shows the fair value of the long-term assets acquired,
the  allocation  of  the  excess value over the purchase price and the resulting
assigned  value  for  the  long-term  assets acquired through the acquisition of
Digital:

<TABLE>
<CAPTION>
                                                    EXCESS VALUE     VALUE ASSIGNED
                                                    OVER PURCHASE    TO NET ASSETS
BALANCE SHEET CATEGORY (In millions)   VALUATION        PRICE           ACQUIRED
====================================  ===========  ===============  ================
<S>                                   <C>          <C>              <C>
Property, plant and equipment. . . .  $    1,470   $         (592)  $           878
Purchased in-process technology. . .       5,722           (2,526)            3,196
Intangible assets:
 Proven research and development . .         990             (437)              553
 Installed customer base . . . . . .       2,150             (949)            1,201
 Trademarks. . . . . . . . . . . . .         291             (129)              162
Other assets . . . . . . . . . . . .         953             (262)              691
Deferred tax liability . . . . . . .      (1,121)             829              (292)
</TABLE>

     Approximately  $3.2  billion  of  the  purchase  price represents purchased
in-process technology that had not yet reached technological feasibility and had
no alternative future use.  Accordingly, this amount was immediately expensed in
the  Consolidated Statement of Income upon consummation of the acquisition.  The
value assigned to purchased in-process technology, based on a valuation prepared
by  an  independent third-party appraisal company, was determined by identifying
research  projects  in  areas  for  which technological feasibility had not been
established,  including  UNIX/OpenVMS ($1.6 billion), NT Systems ($800 million),
storage  ($2.7  billion) and others ($600 million).  The value was determined by
estimating  the  costs  to  develop  the  purchased  in-process  technology into
commercially  viable products, estimating the resulting net cash flows from such
projects,  and  discounting the net cash flows back to their present value.  The
discount  rate  included  a  factor  that  takes  into  account  the uncertainty
surrounding  the  successful development of the purchased in-process technology.
If  these  projects  are  not  successfully  developed,  future  revenue  and
profitability  of  Compaq may be adversely affected.  Additionally, the value of
other  intangible  assets  acquired  may  become  impaired.

                                       35
<PAGE>
     The following table represents unaudited consolidated pro forma information
as  if  Compaq  and Digital had been combined as of the beginning of the periods
presented.  The  pro  forma data is presented for illustrative purposes only and
is  not  necessarily  indicative of the combined results of operations of future
periods  or the results that actually would have occurred had Compaq and Digital
been  a  combined  company during the specified periods.  The pro forma combined
results  include the effects of the purchase price allocation on depreciation of
property, plant and equipment and amortization of intangible assets; adjustments
to  reflect  the  reversal  of  interest  income  resulting from the use of cash
related  to the acquisition of Digital, and preferred stock dividends paid.  The
pro  forma  combined  results  exclude acquisition-related charges for purchased
in-process  technology  related  to  Digital.

<TABLE>
<CAPTION>
Year ended December 31 (In millions, except per share amounts)     1998       1997
==============================================================  =========  =========
                                                                PRO FORMA  UNAUDITED
<S>                                                             <C>        <C>
Revenue:
 Products. . . . . . . . . . . . . . . . . . . . . . . . . . .  $  29,955  $  31,350
 Services. . . . . . . . . . . . . . . . . . . . . . . . . . .      6,447      6,295
                                                                ---------  ---------
   Total revenue . . . . . . . . . . . . . . . . . . . . . . .  $  36,402  $  37,645
                                                                ---------  ---------

Net income . . . . . . . . . . . . . . . . . . . . . . . . . .  $     275  $   1,798
                                                                ---------  ---------

Earnings per common share:
 Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    0.16  $    1.09
 Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    0.16  $    1.05


Shares used in computing earnings per common share:
 Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,672      1,646
 Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,736      1,706
</TABLE>

     During 1998, Compaq Capital purchased from G.E. Capital Corporation a lease
portfolio  for  $361  million.  The  underlying  equipment consists primarily of
Digital  manufactured  equipment.  Also  during  1998,  Compaq Capital purchased
certain  assets  and  assumed  certain  liabilities  of  Dana  Commercial Credit
Corporation's  computer  equipment leasing business.  The purchase price was $50
million.  The  assets  acquired  consist  primarily  of  direct financing leases
related  to  Compaq  manufactured  equipment.

     On  August  29,  1997,  Compaq  merged  with  Tandem Computers Incorporated
("Tandem")  in  a  stock-for-stock  transaction  accounted  for  as a pooling of
interests.  Tandem  provided  its  customers  with  reliable,  scaleable,
fault-tolerant  enterprise  computer  systems  and  client/server  solutions. In
connection  with  the  merger, Compaq issued 126 million shares of common stock,
based  upon  an  exchange  ratio  of 1.05 shares of Compaq common stock for each
share of Tandem common stock.  Merger-related costs of $44 million are comprised
primarily  of  transaction  costs  for  fees  of  investment bankers, attorneys,
accountants  and  printing,  and  are reflected in the Consolidated Statement of
Income  for  the  year  ended December 31, 1997.  The financial data included in
these financial statements have been restated to reflect the merger with Tandem.
There were no material transactions between Compaq and Tandem during the periods
prior to the merger. The consolidated financial data for the year ended December
31,  1996  includes the results of Tandem for the year ended September 30, 1996.
For 1997, Tandem's fiscal year end was changed from September 30 to December 31.
As  permitted  by  Securities  and  Exchange  Commission  regulations,  Tandem's
three-month  period  ended  December  31,  1996  has  been  omitted  from  the
Consolidated  Statement  of  Income  and  recorded  as an adjustment to retained
earnings in 1997.  Tandem's revenues, expenses and net income were $436 million,
$424  million  and  $12  million,  respectively,  for  that period.  Tandem also
generated a $40 million increase in cash and cash equivalents during the quarter
ended  December  31,  1996.

                                       36
<PAGE>
     In  May  1997,  Compaq  completed  a  tender  offer  for  Microcom, Inc., a
manufacturer  of  remote  access  technologies  and  solutions.  The  aggregate
purchase  price  of  $288  million  consisted  of  $278  million in cash and the
assumption of certain employee stock options.  The transaction was accounted for
under  the purchase method of accounting. Accordingly, the results of operations
of  the  acquired business and the fair market values of the acquired assets and
liabilities  were  included  in  Compaq's  financial statements from the date of
acquisition.  The  aggregate purchase price has been allocated to the assets and
liabilities  acquired.  The  aggregate  purchase  price  included  $208 million,
representing  the  value  of  purchased  in-process  technology that had not yet
reached  technological  feasibility  and  had  no  alternative  future  use.
Accordingly,  this  amount  was  expensed  in Compaq's Consolidated Statement of
Income  during  1997.

NOTE  3.  RESTRUCTURING  AND  ASSET  IMPAIRMENT  CHARGES

     In  June  1998,  Compaq's  management  approved  restructuring  plans which
included  initiatives to integrate operations of Compaq and Digital, consolidate
duplicative  facilities,  improve  service  delivery and reduce overhead.  Total
restructuring  costs  of  approximately $1.7 billion were recorded in the second
quarter  related  to these initiatives, $1.5 billion of which related to Digital
that  was  recorded  as a component of the preliminary purchase price allocation
and  $286  million  of  which  related to Compaq that was charged to operations.

The restructuring costs recorded in the second quarter of 1998 were comprised of
the  following:

<TABLE>
<CAPTION>
(In millions)                       COMPAQ   DIGITAL   TOTAL
==================================  =======  ========  ======
<S>                                 <C>      <C>       <C>
Employee separations . . . . . . .  $   132  $    999  $1,131
Facility closure costs . . . . . .      142       272     414
Relocation . . . . . . . . . . . .        -        99      99
Other exit costs . . . . . . . . .       12        88     100
                                    -------  --------  ------
Total accrued restructuring costs.  $   286  $  1,458  $1,744
                                    =======  ========  ======
</TABLE>

     At  June  30,  1998,  the  Digital  restructuring  plans  were  based  on
management's  best  estimate of those costs based on available information.  The
restructuring  costs  accrued  in  June  1998  included estimates of the cost of
involuntary  employee  separation  benefits  related  to  approximately  19,700
employees  worldwide  (approximately  14,700  Digital employees and 5,000 Compaq
employees).  Employee  separation  benefits include severance, medical and other
benefits.  Employee  separations  affect the majority of business functions, job
classes  and geographies, with most of the reductions occurring in North America
and  Europe.  The  restructuring  plans  also included costs associated with the
closure  of  13.2  million square feet of office, distribution and manufacturing
space,  principally  in  North  America and Europe.  Other accrued restructuring
costs  relate  to the relocation of Digital employees, with the majority of this
amount  attributable to relocations in North America and Europe, and the cost of
terminating  certain  Digital contractual obligations.  Compaq expects that most
of  the  restructuring  actions  will  be  completed  by  June  1999.

                                       37
<PAGE>
     In  the  fourth  quarter of 1998, Compaq adjusted the Digital restructuring
plan  which  resulted  in  a  reduction  of  $59  million  of  accrued  Digital
restructuring  costs.  This  reduction  was  recorded  as  an  adjustment to the
preliminary  purchase  price  allocation  during  the quarter ended December 31,
1998.  There was no adjustment to the Compaq restructuring plan.  The adjustment
to  the  Digital  restructuring  plan  included  a  $47  million net increase in
severance  costs.  This increase was primarily due to higher than expected costs
associated  with workforce reductions in Europe, partially offset by higher than
expected attrition rates.  While the total Digital employee separation target of
14,700  is expected to be achieved, Digital involuntary separations are expected
to decrease to approximately 12,400 as a result of the higher than expected rate
of  attrition.  The  higher  severance  costs  were  more  than  offset by lower
facility  closure  costs  of  $55  million, primarily due to lower than expected
costs  to  dispose  of  facilities.  In  addition,  the  estimate  of  employee
relocation  costs was reduced by $54 million due to a lower than expected number
of  employees  accepting  relocation  packages.

     The  accrued restructuring costs and amounts charged against the accrual as
of  December  31,  1998,  were  as  follows:

<TABLE>
<CAPTION>
                                    BEGINNING        CASH                    REMAINING
(In millions)                        ACCRUAL     EXPENDITURES    ADJUSTMENT   ACCRUAL
==================================  ==========  ==============  ============  ========
<S>                                 <C>         <C>             <C>           <C>
Employee separations . . . . . . .  $    1,131  $        (455)  $        47   $    723
Facility closure costs . . . . . .         414            (42)          (55)       317
Relocation . . . . . . . . . . . .          99             (2)          (54)        43
Other exit costs . . . . . . . . .         100            (76)            3         27
                                    ----------  --------------  ------------  --------
Total accrued restructuring costs.  $    1,744  $        (575)  $       (59)  $  1,110
                                    ==========  ==============  ============  ========
</TABLE>

     Cash  expenditures  are  not  reflective of the actual costs incurred as of
December  31,  1998  due  to  the  impact  of  regulatory  guidelines in certain
countries  relating  to  the timing of payment of severance benefits to affected
employees.  As  of  December 31, 1998, employee separations due to restructuring
actions  totaled  10,542.  Total  severance  costs related to these individuals,
including the cash payments of $455 million already made, are approximately $570
million.  The  total  net  headcount  reduction since the acquisition of Digital
including attrition and restructuring, partially offset by selective hiring, was
approximately  12,800.

     During  1998,  Compaq  also recorded a $107 million charge related to asset
impairments.  The  asset  impairments resulted from the writedown to fair market
value,  less costs to sell, for assets taken out of service and held for sale or
disposal.  The majority of this charge related to the impairment of  $74 million
of  intangible  assets  associated with the acquisition of a company during 1995
that  developed,  manufactured,  and  supplied  fast ethernet hubs, switches and
related  products.  In  May  1998, management decided to close the manufacturing
facility  and  abandoned  the technologies acquired through this acquisition and
discontinued  all  related  products.

                                       38
<PAGE>
NOTE  4.  BALANCE  SHEET  COMPONENTS

     Inventories  consisted  of  the  following:

<TABLE>
<CAPTION>
December 31 (In millions)   1998    1997
=========================  ======  ======
<S>                        <C>     <C>
Raw material. . . . . . .  $  404  $  439
Work-in progress. . . . .     403     328
Finished goods. . . . . .   1,198     803
                           ------  ------
                           $2,005  $1,570
                           ======  ======
</TABLE>

     Property,  plant  and  equipment  consisted  of  the  following:

<TABLE>
<CAPTION>
December 31 (In millions)               1998    1997
=====================================  ======  ======
<S>                                    <C>     <C>
Land. . . . . . . . . . . . . . . . .  $  249  $  185
Buildings and leasehold improvements.   1,653   1,076
Machinery and equipment . . . . . . .   2,927   2,392
Construction-in-process and other . .     394     373
                                       ------  ------
                                        5,223   4,026
Less accumulated depreciation . . . .   2,321   2,041
                                       ------  ------
                                       $2,902  $1,985
                                       ======  ======
</TABLE>

     Depreciation expense totaled $606 million, $447 million and $387 million in
1998,  1997  and  1996,  respectively.

     Intangibles  and  other  assets  consisted  of  the  following:

<TABLE>
<CAPTION>
December 31 (In millions)          1998   1997
================================  ======  =====
<S>                               <C>     <C>
Installed customer base. . . . .  $1,201  $   -
Proven research and development.     612    178
Trademarks . . . . . . . . . . .     164      5
Other assets . . . . . . . . . .   2,119    751
                                  ------  -----
                                   4,096    934
Less accumulated amortization. .     455    305
                                  ------  -----
                                  $3,641  $ 629
                                  ======  =====
</TABLE>

     Amortization  expense  totaled $287 million, $98 million and $96 million in
1998,  1997  and  1996,  respectively.

                                       39
<PAGE>
     Other  current  liabilities  consisted  of  the  following:

<TABLE>
<CAPTION>
December 31 (In millions)            1998    1997
==================================  ======  ======
<S>                                 <C>     <C>
Salaries, wages and related items.  $  749  $  195
Deferred revenue . . . . . . . . .     845     136
Accrued warranty . . . . . . . . .     752     431
Other accrued liabilities. . . . .   2,758   1,408
                                    ------  ------
                                    $5,104  $2,170
                                    ======  ======
</TABLE>

NOTE  5.  CREDIT  AGREEMENTS  AND  FINANCING  ARRANGEMENTS

     In  October  1998,  Compaq  entered  into  a  one-year $1 billion unsecured
revolving  credit  facility  to  replace  a  similar  facility  that  expired in
September  1998.  In  addition,  Compaq  has  a  five-year, $3 billion revolving
credit  facility that expires in September 2002.  There were no borrowings under
these  facilities  during  1998  or  1997.

     In  June  1998,  Compaq  completed  a  cash  tender  offer for Digital debt
securities  with  a  fair  value  of  $879  million, including accrued interest.
Compaq  paid  an  aggregate of $799 million (including accrued interest) for the
notes  and  debentures  tendered.  The  untendered  balance  of  the  notes  and
debentures  is  included  in  other  current  liabilities.

NOTE  6.  OTHER  INCOME  AND  EXPENSE

     Other  income  and  expense  consisted  of  the  following:

<TABLE>
<CAPTION>
Year ended December 31 (In millions)                  1998      1997      1996
==================================================  ========  ========  ========
<S>                                                 <C>       <C>       <C>
Interest and dividend income . . . . . . . . . . .  $  (287)  $  (266)  $  (126)
Interest (income) expense associated with hedging.        9        (4)       (3)
Other interest expense . . . . . . . . . . . . . .      166       168       106
Currency losses, net . . . . . . . . . . . . . . .       16        31        14
Minority interest dividend . . . . . . . . . . . .       19         -         -
Other, net . . . . . . . . . . . . . . . . . . . .        8        48        26
                                                    --------  --------  --------
                                                    $   (69)  $   (23)  $    17
                                                    ========  ========  ========
</TABLE>

NOTE  7.  PROVISION  FOR  INCOME  TAXES

     The components of income (loss) before provision for income taxes were as
follows:

<TABLE>
<CAPTION>
Year ended December 31 (In millions)     1998      1997    1996
====================================  ==========  ======  ======
<S>                                   <C>         <C>     <C>
Domestic . . . . . . . . . . . . . .  $  (4,782)  $1,789  $  929
Foreign. . . . . . . . . . . . . . .      2,120      969     954
                                      ----------  ------  ------
                                      $  (2,662)  $2,758  $1,883
                                      ==========  ======  ======
</TABLE>

                                       40
<PAGE>
     The  provision for income taxes  charged to operations was as follows:

<TABLE>
<CAPTION>
Year ended December 31 (In millions)    1998     1997    1996
====================================  ========  =====  ========
<S>                                   <C>       <C>    <C>
Current tax expense (benefit)
 U.S. federal. . . . . . . . . . . .  $   (92)  $430   $   672
 State and local . . . . . . . . . .       (9)    30        34
 Foreign . . . . . . . . . . . . . .      312    241       238
                                      --------  -----  --------
 Total current . . . . . . . . . . .      211    701       944
                                      --------  -----  --------

Deferred tax expense (benefit)
 U.S. federal. . . . . . . . . . . .     (429)   194      (332)
 State and local . . . . . . . . . .      (11)     2       (19)
 Foreign . . . . . . . . . . . . . .      310      6       (28)
                                      --------  -----  --------
 Total deferred. . . . . . . . . . .     (130)   202      (379)
                                      --------  -----  --------
 Total provision . . . . . . . . . .  $    81   $903   $   565
                                      ========  =====  ========
</TABLE>

     The reasons  for  the  differences  between income tax expense and amounts
calculated  using  the  U.S.  statutory  rate  of  35%  were  as  follows:

<TABLE>
<CAPTION>
Year ended December 31 (In millions)               1998     1997      1996
===============================================  ========  =======  ========
<S>                                              <C>       <C>      <C>
Tax expense (benefit) at U.S. statutory rate. .  $  (932)  $  965   $   659
Foreign tax effect, net . . . . . . . . . . . .      (40)     (88)     (105)
Non-deductible purchased in-process technology.    1,119       73         -
Release of valuation allowance. . . . . . . . .      (77)     (30)       (7)
Other, net. . . . . . . . . . . . . . . . . . .       11      (17)       18
                                                 --------  -------  --------
                                                 $    81   $  903   $   565
                                                 ========  =======  ========
</TABLE>

     In  connection  with  the  1998  and  1997  acquisitions,  Compaq  recorded
non-recurring, non-tax-deductible charges for purchased in-process technology of
approximately  $3.2  billion and $208 million, respectively.  In connection with
the  1997  Tandem  merger,  Compaq  incurred  $44  million  of  non-recurring,
non-tax-deductible  merger expenses.  The exclusion of these non-taxable charges
would  result  in  effective  tax  rates  of  15%  and  30%  in  1998  and 1997,
respectively.

     Compaq benefits from a tax holiday in Singapore which expires in 2001, with
a potential extension to August 2004 if certain cumulative investment levels and
other  conditions  are maintained.  Compaq has determined that the undistributed
earnings  of  its  Singaporean  manufacturing  subsidiary  will  be  reinvested
indefinitely.  In  addition,  Compaq  has  determined  that  the  preacquisition
undistributed  earnings  of  the  acquired  Digital foreign subsidiaries will be
reinvested indefinitely.  Undistributed post-acquisition earnings of the Digital
subsidiaries  are  not  reinvested  indefinitely.  As  a  result  of  these
determinations,  no  incremental  tax  is reflected for the earnings of Compaq's
Singaporean  manufacturing subsidiary or for the pre-acquisition earnings of the
Digital  subsidiaries.  These  earnings  would  become  subject  to  incremental
foreign  withholding,  federal  and  state  income  tax if they were actually or
deemed to be remitted to the U.S.   Compaq estimates an additional tax provision
of  approximately  $2.1  billion  would  be  required  if  the  full  amount  of
approximately  $6.0  billion  in  accumulated  earnings  were actually or deemed
distributed  to  the  U.S.

                                       41
<PAGE>
     Compaq  recorded  a  gross deferred tax asset of approximately $2.8 billion
upon the acquisition of Digital.  This gross deferred tax asset was reduced by a
valuation allowance of $562 million, resulting in a net increase in the deferred
tax asset of approximately $2.2 billion.  The valuation allowance is principally
composed  of  pre-acquisition  tax  loss  carryforwards and credit carryforwards
incurred  by Digital which management has determined are more likely than not to
expire  unused.  If  it is subsequently determined that a portion of the Digital
deferred  tax  asset  to  which  the  valuation  allowance  relates  should  be
recognized,  the tax benefit of such recognition will be allocated to noncurrent
intangible  assets  acquired  in  the  acquisition.

     During  1998  the Company recorded $65 million of other tax loss and credit
carryforwards  for  which  a  full  valuation  allowance  was  provided  due  to
uncertainty  surrounding  their  realizability.

     The valuation allowance was reduced by $77 million to reflect Tandem credit
carryforwards  which,  as a result of the fourth quarter 1998 liquidation of the
U.S.  Tandem  parent  company,  are  now  believed  more  likely  than not to be
realized.  This  reduction  in the valuation allowance resulted in a tax benefit
as  a  component  of  the  deferred  income  tax  provision.

     Deferred  tax  assets  (liabilities)  are  comprised  of  the  following:

<TABLE>
<CAPTION>
December 31 (In millions)                                                   1998      1997
========================================================================  ========  ========
<S>                                                                       <C>       <C>
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . .  $   144   $     -
Compensation accruals. . . . . . . . . . . . . . . . . . . . . . . . . .      227         -
Restructuring accrual. . . . . . . . . . . . . . . . . . . . . . . . . .      431         -
Post sales support and warranty accruals . . . . . . . . . . . . . . . .      255       154
Receivable allowances. . . . . . . . . . . . . . . . . . . . . . . . . .      349       353
Inventory adjustments. . . . . . . . . . . . . . . . . . . . . . . . . .      182        99
Capitalized research and development costs . . . . . . . . . . . . . . .      679        95
Loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . .    1,300        50
Credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . .      411       119
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      441       186
                                                                          --------  --------
    Gross deferred tax assets. . . . . . . . . . . . . . . . . . . . . .    4,419     1,056
                                                                          --------  --------
Difference arising from different tax and financial reporting year ends.        -      (254)
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . .     (715)      (64)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (104)      (73)
                                                                          --------  --------
    Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . .     (819)     (391)
                                                                          --------  --------
Deferred tax asset valuation allowance . . . . . . . . . . . . . . . . .     (684)     (134)
                                                                          --------  --------
                                                                          $ 2,916   $   531
                                                                          ========  ========
</TABLE>

     Tax loss carryforwards will generally expire between 1999 and 2019.  Credit
carryforwards  will generally expire between 1999 and 2013.  U.S. tax laws limit
the  annual  utilization  of  tax  loss  and  credit  carryforwards  of acquired
entities.  These limitations should not materially impact the utilization of the
tax  carryforwards.

NOTE  8.  STOCK  OPTION  PLANS

     Compaq  maintains various stock option plans for its employees.  Options to
employees  are generally granted at the fair market value of the common stock at
the date of grant and generally vest over four to five years. Options granted to
employees under Compaq's stock option plans must be exercised not later than ten
years  from  the  date  of  grant.

                                       42
<PAGE>
     In  1998, Compaq adopted the 1998 Stock Option Plan.  Pursuant to the terms
of  this  plan,  employees  and  non-employee  directors are eligible to receive
options to purchase Compaq common stock.  Up to 150 million shares may be issued
under this plan and will be drawn from either authorized but previously unissued
shares  or  from treasury shares.  Options granted under this plan, except those
granted in connection with acquisitions (Note 2), are granted at the fair market
value  of  the common stock at the date of grant.  The vesting period and option
life  for  grants  to employees are at the discretion of the Board of Directors.
The  terms  for  initial  grants and annual grants to non-employee directors are
described  below.

     Compaq  also  maintains  plans  under  which  it  offers  stock  options to
non-employee  directors.  Pursuant  to  the  terms  of  the  plans  under  which
directors  are  eligible  to  receive  options,  each  non-employee  director is
entitled to receive options to purchase common stock upon initial appointment to
the  Board  (initial grants) and upon subsequent reelection to the Board (annual
grants).  Initial  grants  are  exercisable during the period beginning one year
after  initial  appointment  to the Board and ending ten years after the date of
grant.  Annual  grants  vest over two years and are exercisable thereafter until
the  tenth  anniversary  of  the  date  of grant. Both initial grants and annual
grants  have an exercise price equal to the fair market value of Compaq's common
stock  on  the date of grant. Additionally, directors may elect to receive stock
options  in  lieu  of all or a portion of the annual retainer to be earned. Such
options  are granted at 50% of the price of Compaq's common stock at the date of
grant  and  are exercisable during the period beginning one year after the grant
date  and  ending  ten  years  after  the grant date. The expense resulting from
options  granted  at 50% of the price of Compaq's common stock at the grant date
is  charged  to  operations  over  the  vesting  period.

At  December 31, 1998, there were 374 million shares of common stock reserved by
the  Board  of  Directors for issuance under all of Compaq's stock option plans.
For  all  plans,  options  of  88 million, 71 million and 73 million shares were
exercisable at December 31, 1998, 1997 and 1996 with a weighted average exercise
price  of  $11.76,  $6.52  and  $5.53, respectively.  There were 217 million, 64
million  and  101 million shares available for grant under the plans at December
31,  1998,  1997  and  1996,  respectively.

                                       43
<PAGE>
The following table summarizes activity under the stock option plans for each of
the  three  years  ended  December  31,  1998:

<TABLE>
<CAPTION>
                                                   Shares                         Weighted Average
                                                In  Millions    Price Per Share   Price Per Share 
==============================================  =============  =================  ================
<S>                                             <C>            <C>                <C>
OPTIONS OUTSTANDING, DECEMBER 31, 1995 . . . .           164                      $           5.94
 Options granted . . . . . . . . . . . . . . .            47   $ 4.71  -  $22.39             14.11
 Options lapsed or canceled. . . . . . . . . .           (15)                                 8.61
 Options exercised . . . . . . . . . . . . . .           (33)    0.38  -   13.46              3.50
                                                -------------                                     
OPTIONS OUTSTANDING, DECEMBER 31, 1996 . . . .           163                                  8.53
 Options granted . . . . . . . . . . . . . . .            46     2.55  -   37.38             27.17
 Options lapsed or canceled. . . . . . . . . .            (9)                                11.57
 Options exercised . . . . . . . . . . . . . .           (29)    0.79  -   25.96              6.26
                                                -------------                                     
OPTIONS OUTSTANDING, DECEMBER 31, 1997 . . . .           171                                 13.63
 Options granted in the acquisition of Digital            25      5.94  -  39.23             22.23
 Options granted . . . . . . . . . . . . . . .            13     14.44  -  42.00             33.35
 Options lapsed or canceled. . . . . . . . . .           (16)                                21.84
 Options exercised . . . . . . . . . . . . . .           (36)     1.30  -  39.23             11.39
                                                -------------                                     
OPTIONS OUTSTANDING, DECEMBER 31, 1998 . . . .           157                                 16.37
                                                =============                     ================
</TABLE>

     The  following  table  summarizes  significant  ranges  of  outstanding and
exercisable  options  at  December  31,  1998:

<TABLE>
<CAPTION>
                             Options Outstanding           Options Exercisable
                   -------------------------------------  ----------------------
                                  Weighted     Weighted                Weighted
                                   Average      Average                 Average
Ranges of            Shares       Remaining    Exercise     Shares     Exercise
Exercise Prices    In Millions  Life in Years    Price    In Millions    Price
=================  ===========  =============  =========  ===========  =========
<S>                <C>          <C>            <C>        <C>          <C>
   under $5.00. .           31            3.3  $    3.16           31  $    3.16
   5.01 to 10.00.           32            6.2       8.81           21       8.66
   10.01 to 15.00           16            6.6      12.26            9      12.26
   15.01 to 20.00           26            7.7      16.26           11      16.57
   20.01 to 25.00            7            7.5      22.82            7      22.85
   25.01 to 30.00           26            8.8      27.97            5      27.98
    over $30.00 .           19            8.5      35.35            4      37.23
</TABLE>

                                       44
<PAGE>
     The  fair value of the stock options granted in the Digital acquisition was
included  in  the  purchase  price  of Digital.  Excluding options issued in the
Digital  acquisition,  the  weighted average fair value per share of stock based
compensation  issued  during  1998,  1997  and 1996 was $12.95, $9.74 and $6.55,
respectively.  The  fair  value  for  these  options  was  estimated  using  the
Black-Scholes  model  with  the  following  weighted  average  assumptions:

<TABLE>
<CAPTION>
Year ended December 31           1998   1997   1996 
===============================  =====  =====  =====
<S>                              <C>    <C>    <C>
Expected option life (in years)     5      4      5 
Risk-free interest rate . . . .   4.6%   6.0%   6.1%
Volatility. . . . . . . . . . .  33.5%  33.3%  44.0%
Dividend yield. . . . . . . . .   0.2%   0.2%     - 
</TABLE>

     The table that follows summarizes the pro forma effect on net income (loss)
if  the  fair values of stock based compensation had been recognized in the year
presented  as  compensation  expense  on  a straight-line basis over the vesting
period  of  the  grant.  The following pro forma effect on net income (loss) for
the  years presented is not representative of the pro forma effect on net income
(loss)  in  future  years  because it does not take into consideration pro forma
compensation  expense  related  to  grants  made  prior  to  1995.

<TABLE>
<CAPTION>
Year ended December 31 (In millions, except per share amounts)     1998      1997    1996
==============================================================  ==========  ======  ======
<S>                                                             <C>         <C>     <C>
Income (loss) before provision for income taxes:
 As reported . . . . . . . . . . . . . . . . . . . . . . . . .    $(2,662)  $2,758  $1,883
 Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . .     (2,832)   2,667   1,835

Net income (loss):
 As reported . . . . . . . . . . . . . . . . . . . . . . . . .     (2,743)   1,855   1,318
 Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . .     (2,854)   1,796   1,287

Diluted earnings (loss) per share:
 As reported . . . . . . . . . . . . . . . . . . . . . . . . .      (1.71)    1.19    0.87
 Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . .      (1.77)    1.15    0.85
</TABLE>

NOTE  9.  STOCKHOLDERS'  EQUITY

     Dividends  -  On  December  10,  1998,  Compaq  announced that the Board of
Directors  approved  a  cash  dividend  of  $0.02  per share of common stock, or
approximately  $34 million, to shareholders of record as of December 31, 1998 to
be  paid  in  1999.

     Treasury  Stock  -  On  April 23, 1998, the Board of Directors authorized a
systematic  common stock repurchase program.  Compaq implemented this program in
May  1998.  Compaq  has  repurchased  approximately  11  million  shares through
December  31, 1998, for a cost of approximately $384 million under this program.
The  program  was  implemented  to  reduce  the dilutive impact of common shares
issued  under  Compaq's  equity  incentive  plans.

NOTE  10.  PENSION  AND  OTHER  BENEFIT  PROGRAMS

     Defined  Benefit  Pension  Plans  and Other Postretirement Employee Benefit
Plans  ("OPEB"  plans)  -  Upon  consummation of the Digital acquisition, Compaq
assumed  certain  of  Digital's defined benefit pension and OPEB plans.  Digital
employees  who  were eligible to participate in the Digital plans at the time of
the  acquisition  continue to be eligible to participate in these plans.  Compaq
also  assumed  the  OPEB  plans  that  provide  medical  and  dental benefits to
Digital's  retirees  and their eligible dependents in the U.S. and certain other
locations.

     Benefits under the defined benefit pension plans are generally based on pay
and  service.  In  the U.S., the main plan (which covers only certain ex-Digital
employees)  is a cash balance plan, under which the benefit is usually paid as a
lump  sum  amount.

                                       45
<PAGE>
     The Company's OPEB plans are funded as costs are incurred.  The majority of
these  plans  are  contributory,  with  contributions in many cases adjusted for
general  inflation  or  inflation  in  costs  under  the  plan.

     The  Company  recorded  an  additional minimum liability as of December 31,
1998  totaling  $55  million  ($38  million  net  of  tax)  for  plans where the
accumulated  benefit  obligation  exceeded the fair market value of assets.  The
projected  benefit  obligation, accumulated benefit obligation and fair value of
plan  assets  for  which  the accumulated benefit obligations exceed plan assets
approximated  $1.1  billion,  $994  million and $840 million, respectively.  The
minimum  liability  recorded for plans with an overfunded and underfunded status
is  as  follows:

<TABLE>
<CAPTION>
                                                       Underfunded    Overfunded
December 31, 1998 (In millions)                           Plans         Plans       Total
====================================================  =============  ============  =======
<S>                                                   <C>            <C>           <C>
Plan status:
 Accrued pension liability . . . . . . . . . . . . .  $        (50)  $         -   $  (50)
 Prepaid pension asset . . . . . . . . . . . . . . .             -            16       16

Minimum liability required . . . . . . . . . . . . .           (76)          (13)     (89)
                                                      -------------  ------------  -------

Minimum pension liability adjustment reflected
   in comprehensive income . . . . . . . . . . . . .           (26)          (29)     (55)
Tax benefit. . . . . . . . . . . . . . . . . . . . .             8             9       17
                                                      -------------  ------------  -------
Minimum liability reflected in comprehensive income
 (loss), net of tax. . . . . . . . . . . . . . . . .  $        (18)  $       (20)  $  (38)
                                                      =============  ============  =======
</TABLE>

                                       46
<PAGE>
     Information  regarding  Compaq's  defined  benefit  and  OPEB  plans  is as
follows:

<TABLE>
<CAPTION>
                                                      DEFINED BENEFIT 
                                                       PENSION PLANS       OPEB PLANS
   Year ended December 31, 1998 (In millions)          US     FOREIGN     US     FOREIGN
=================================================  ========  ========  ========  =======
<S>                                                <C>       <C>       <C>       <C>
Change in benefit obligation
 Benefit obligation at beginning
    of year . . . . . . . . . . . . . . . . . . .  $     -   $     -   $     -   $    -
 Digital acquisition. . . . . . . . . . . . . . .    2,181     1,557       329       15
 Service cost . . . . . . . . . . . . . . . . . .       37        35         4        1
 Interest cost. . . . . . . . . . . . . . . . . .       87        57        13        -
 Plan participants' contributions . . . . . . . .        -         6         2        -
 Actuarial (gain) loss. . . . . . . . . . . . . .       17       122       (14)      (1)
 Benefits paid. . . . . . . . . . . . . . . . . .     (119)      (37)      (14)       -
 Currency loss. . . . . . . . . . . . . . . . . .        -        91         -        -
                                                   --------  --------  --------  -------
   Projected benefit obligation at end of year. .    2,203     1,831       320       15
                                                   --------  --------  --------  -------

Change in plan assets
  Fair value of plan assets at beginning of year.        -         -         -        -
 Plan assets acquired through acquisition
   of Digital . . . . . . . . . . . . . . . . . .    2,346     1,833         -        -
 Actual return on plan assets . . . . . . . . . .      (29)      (99)        -        -
 Employer contribution. . . . . . . . . . . . . .        -         8        12        -
 Plan participants' contributions . . . . . . . .        -         6         2        -
 Benefits paid. . . . . . . . . . . . . . . . . .     (119)      (37)      (14)       -
 Currency gain. . . . . . . . . . . . . . . . . .        -       102         -        -
                                                   --------  --------  --------  -------
 Fair value of plan assets at end of year . . . .    2,198     1,813         -        -
                                                   --------  --------  --------  -------

Funded status . . . . . . . . . . . . . . . . . .       (5)      (18)     (320)     (15)

Unrecognized net actuarial (gain) loss. . . . . .      173       307       (18)      (1)
                                                   --------  --------  --------  -------
 Prepaid (accrued) benefit cost
   (measurement date October 31, 1998). . . . . .      168       289      (338)     (16)
 Contributions after measurement date . . . . . .        -         6         3        -
                                                   --------  --------  --------  -------
 Prepaid (accrued) benefit cost . . . . . . . . .  $   168   $   295   $  (335)  $  (16)
                                                   ========  ========  ========  =======

Amounts included in the Consolidated Balance
    Sheet are comprised of:
 Prepaid benefit cost . . . . . . . . . . . . . .  $   168   $   420   $     -   $    -
 Accrued benefit liability. . . . . . . . . . . .        -      (180)     (335)     (16)
 Accumulated other comprehensive income . . . . .        -        55         -        -
                                                   --------  --------  --------  -------
   Net amount recognized. . . . . . . . . . . . .  $   168   $   295   $  (335)  $  (16)
                                                   ========  ========  ========  =======
</TABLE>

                                       47
<PAGE>
<TABLE>
<CAPTION>
                                            DEFINED BENEFIT         OPEB
                                             PENSION PLANS          PLANS
                                            ---------------     --------------
   Year ended December 31, 1998             US     FOREIGN     US     FOREIGN
======================================  ========  ========  ======  =============
<S>                                     <C>       <C>       <C>     <C>
Weighted-average assumptions as of
  October 31
 Discount rate . . . . . . . . . . . .     7.00%   5.75  %   7.00%          5.25%
 Expected return on plan assets. . . .     9.00%   7.00  %    N/A           N/A
 Rate of compensation increase . . . .     4.50%   3.25  %    N/A           N/A
 Health care cost trend rate,
   current year. . . . . . . . . . . .      N/A     N/A      5.25%   5.5% to 8.5%
 Health care cost trend rate,
   ultimate year . . . . . . . . . . .      N/A     N/A      4.50%   3.5% to 5.5%
 Trend rate decreases to the ultimate
   rate in the year. . . . . . . . . .      N/A     N/A      2001    2001 to 2003

Components of net periodic benefit
  cost (in millions)
 Service cost. . . . . . . . . . . . .  $    37   $    35   $   4   $          1
 Interest cost . . . . . . . . . . . .       87        57      13              -
 Expected return on plan assets. . . .     (126)      (79)      -              -
 Curtailment (gain). . . . . . . . . .        -        (1)      -              -
                                        --------  --------  ------  -------------
 Net periodic pension cost . . . . . .  $    (2)  $    12   $  17   $          1
                                        ========  ========  ======  =============
</TABLE>

     Assumed  health  care  cost trend rates could have an effect on the amounts
reported  for  the  health  care  plans.  A  one-percentage  point change in the
assumed  health  care  cost  trend  rates  would  have  the  following  effects:

<TABLE>
<CAPTION>
(In millions)                           1% POINT INCREASE    1% POINT DECREASE
-------------------------------------  ------------------  -------------------
<S>                                    <C>                 <C>
Effect on total service and interest
  cost components . . . . . . . . . .  $                4  $               (3)
Effect on postretirement benefit
  obligation. . . . . . . . . . . . .  $               37  $              (32)
</TABLE>

     Defined  Contribution  Plans  - Compaq has defined contribution plans under
which  Compaq  makes  matching  contributions  based  on employee contributions.
These plans are intended to qualify as deferred compensation plans under Section
401(k)  of the Internal Revenue Code of 1986.  Contributions are invested at the
direction  of  the employee in one or more funds, including a fund that consists
of  common  stock  of  Compaq.  Amounts charged to expense were $98 million, $48
million  and  $36  million  in  1998,  1997  and  1996,  respectively.

     Incentive Compensation Plan - Compaq has an incentive compensation plan for
the  majority  of  its employees.  Starting in 1998, payments under the plan are
based  on  a uniform percentage of employees' base pay as determined by a matrix
using  return  on  invested capital and customer satisfaction results.  Prior to
1998,  payments were based on 6% of net income from operations, as defined under
the  previous plan.  Payments are made semiannually.  Amounts charged to expense
were  $68  million,  $109  million  and  $76  million  in  1998,  1997 and 1996,
respectively.

                                       48
<PAGE>
NOTE  11.  DIGITAL  SUMMARIZED  FINANCIAL  INFORMATION  (DIGITAL  STAND-ALONE)

     In  1994,  Digital  sold to the public 16 million depositary shares under a
shelf  registration,  each  representing a one-fourth interest in a share of the
Series  A Preferred Stock, par value $1.00 per share.  Dividends on the Series A
Preferred  Stock  accrue  at the annual rate of 8-7/8%, or $36 million per year.
The  Series  A  Preferred  Stock  is  not convertible into, or exchangeable for,
shares  of  any  other class or classes of Compaq stock.  The Series A Preferred
Stock  is  not  redeemable  prior  to April 1, 1999.  On or after April 1, 1999,
Compaq,  at  its  option, may redeem shares of the Series A Preferred Stock, for
cash  at the redemption price per share of $100 ($25 per depositary share), plus
accrued  and  unpaid dividends.  The redemption is expected to occur on April 1,
1999.  Compaq  has  guaranteed  the  dividend  payments,  redemption  price  and
liquidation preference of the Digital Series A Preferred Stock.  At December 31,
1998,  there  were  declared  and  unpaid dividends of $9 million.  The minority
interest  of  $422 million on Compaq's Consolidated Balance Sheet represents the
fair  value  of  the  Series  A  Preferred  Stock  as of the date of the Digital
acquisition.

     The  summarized  financial  information  for  Digital  and its consolidated
subsidiaries  on  a  stand-alone  basis  is  presented  below.  The  financial
information  for  the  period  subsequent to the acquisition is based on the new
basis  of  accounting  reflecting  the  amounts  included  in the purchase price
allocation  resulting  from Compaq's acquisition of Digital (see Notes 2 and 3),
and  is  presented  in accordance with generally accepted accounting principles.
The  new  basis  of accounting adjustments include (i) fair value adjustments to
the  historical  basis  of  assets and liabilities acquired, (ii) the fair value
assigned  to  intangible  assets,  including purchased in-process technology and
(iii)  accrued  restructuring  charges.  Additionally,  the  Digital stand-alone
financial information includes an allocation of certain costs incurred by Compaq
including an allocation of $66 million of (i) costs for administrative functions
and  services  performed on behalf of Digital by centralized staff groups within
Compaq,  and  (ii)  Compaq's  general  corporate  expenses.  The  costs of these
functions  and services have been allocated to Digital using methods that Compaq
management  believes  are  reasonable.  Such  allocations  are  not  necessarily
indicative  of  the  costs  that  would have been incurred if Digital had been a
separate  entity.

     Although Digital financial information is presented on a stand-alone basis,
the  companies  are  being  managed  on  a  consolidated basis.  The stand-alone
Digital  information does not necessarily reflect the results that Digital would
have realized had the acquisition not occurred and is not necessarily indicative
of  the  future  results  of  Digital.  Separate financial information and other
disclosures  concerning Digital are deemed by management to not be meaningful to
holders  of  the  Series  A  Preferred  Stock.

                                       49
<PAGE>
<TABLE>
<CAPTION>
(In millions)                 NEW BASIS           OLD BASIS
========================  ==================  ==================
                          DECEMBER 26, 1998   DECEMBER 27, 1997
<S>                       <C>                 <C>
Current assets . . . . .  $            4,781  $            6,428
Non-current assets . . .               6,704               2,365
Current liabilities. . .               4,432               3,487
Non-current liabilities.                 545               1,910
Stockholders' equity . .               6,508               3,396
</TABLE>

<TABLE>
<CAPTION>
(In millions)                 NEW BASIS                                     OLD BASIS
======================  =====================      ==============================================================
                         FOR THE PERIOD FROM        FOR THE PERIOD FROM
                            JUNE 12, 1998            DECEMBER 28, 1997                  YEAR ENDED
                               THROUGH                    THROUGH         ---------------------------------------
                          DECEMBER 26, 1998            JUNE 11, 1998      DECEMBER 27, 1997    DECEMBER 28, 1996
                        ---------------------      ---------------------  ------------------  -------------------
<S>                     <C>                        <C>                    <C>                 <C>
Revenue:
 Products. . . . . . .  $              2,898       $              2,650   $            7,228  $            7,562
 Services. . . . . . .                 3,294                      2,731                5,833               6,046
                        ---------------------      ---------------------  ------------------  -------------------
   Total revenue . . .  $              6,192       $              5,381   $           13,061  $           13,608

Gross margin:
 Products. . . . . . .  $              1,027       $                779   $            2,636  $            2,603
 Services. . . . . . .                   981                        834                1,821               1,876
                        ---------------------      ---------------------  ------------------  -------------------
   Total gross margin.  $              2,008       $              1,613   $            4,457  $            4,479

Net income (loss). . .  $             (2,966)(1)   $                (13)  $              275  $             (378)
                        =====================      =====================  ==================  ===================
<FN>
(1)  Net  loss  includes  $3.2  billion  for  the write-off of purchased in-process technology resulting from
     Compaq's  acquisition  of  Digital.
</TABLE>

NOTE  12.  SEGMENT  DATA

     Compaq  manages its business segments primarily on a geographic basis.  The
Company's  reportable segments are comprised of North America and Europe, Middle
East  and  Africa  ("EMEA").  Other  operating  segments  include Japan, Greater
China, Asia Pacific and Latin America.  Each operating segment provides products
and  services  as  further  described  in  Note  1.

     The  accounting  policies  of  the  various  segments are the same as those
described  in  the  "Summary of Significant Accounting Policies" in Note 1.  The
Company  evaluates  the  performance  of  its  segments based on segment profit.
Segment  profit for each segment includes sales and marketing expenses and other
overhead  charges  directly  attributable  to  the  segment and excludes certain
expenses which are managed outside the reportable segments.  Costs excluded from
segment  profit primarily consist of corporate expenses, including income taxes,
as  well  as  other  non-recurring  charges for purchased in-process technology,
restructuring  and asset impairment charges and merger-related costs.  Corporate
expenses  are  comprised  primarily  of  research and development costs, certain
costs  related  to  the Digital integration, corporate marketing costs and other
general  and  administrative expenses which are separately managed.  Compaq does
not  include  intercompany  transfers  between segments for management reporting
purposes.  Segment  assets  exclude  corporate assets.  Corporate assets include
cash  and cash equivalents, short-term investments, manufacturing facilities and
intangible  assets.  Capital expenditures for long-lived assets are not reported
to  management by segment and are excluded as presenting such information is not
practical.

                                       50
<PAGE>
     Summary  information  by segment as of and for the years ended December 31,
1998,  1997  and  1996  is  as  follows:

<TABLE>
<CAPTION>
(In millions)                     1998     1997     1996
===============================  =======  =======  =======
<S>                              <C>      <C>      <C>
NORTH AMERICA:
 Revenue:
   Products . . . . . . . . . .  $13,411  $13,101  $10,448
   Services . . . . . . . . . .    1,341      168      164
 Gross margin:
   Products . . . . . . . . . .    2,884    3,584    2,783
   Services . . . . . . . . . .      545       36       45
 Segment profit . . . . . . . .    1,666    2,587    2,015

 Interest expense . . . . . . .      124      108       65
 Depreciation and amortization.      100       61       61
 Segment assets . . . . . . . .    3,126    1,924    2,507
-------------------------------  -------  -------  -------

EMEA:
 Revenue:
   Products . . . . . . . . . .  $10,135  $ 7,783  $ 6,398
   Services . . . . . . . . . .    1,794      150      107
 Gross margin:
   Products . . . . . . . . . .    2,667    2,157    1,669
   Services . . . . . . . . . .      530       52       32
 Segment profit . . . . . . . .    1,845    1,484    1,078

 Interest expense . . . . . . .        5        6        2
 Depreciation and amortization.       37       24       44
 Segment assets . . . . . . . .    4,028    1,814    1,950
-------------------------------  -------  -------  -------

OTHER SEGMENTS:
 Revenue:
   Products . . . . . . . . . .  $ 3,720  $ 3,238  $ 2,765
   Services . . . . . . . . . .      768      144      127


 Gross margin:
   Products . . . . . . . . . .      833      820      587
   Services . . . . . . . . . .      231       41       31
 Segment profit . . . . . . . .      339      349      137

 Interest expense . . . . . . .       15       10        8
 Depreciation and amortization.       33       29       27
 Segment assets . . . . . . . .    3,020    1,217    1,173
-------------------------------  -------  -------  -------
</TABLE>

                                       51
<PAGE>
     A  reconciliation of the Company's segment gross margin, segment profit and
segment assets to the corresponding consolidated amounts as of and for the years
ended  December  31,  1998,  1997  and  1996  is  as  follows:

<TABLE>
<CAPTION>
(In millions)                                         1998             1997        1996
=================================================  ===========      ==========  ==========
<S>                                                <C>              <C>         <C>
Segment gross margin. . . . . . . . . . . . . . .  $    7,690       $   6,690   $   5,147
Non-segment gross margin. . . . . . . . . . . . .        (501)(1)          61           7
                                                   -----------      ----------  ----------
 Total gross margin . . . . . . . . . . . . . . .  $    7,189       $   6,751   $   5,154
                                                   ===========      ==========  ==========

Segment profit. . . . . . . . . . . . . . . . . .  $    3,850       $   4,420   $   3,230
Corporate expenses, net . . . . . . . . . . . . .      (2,923)         (1,410)     (1,295)
Purchased in-process technology . . . . . . . . .      (3,196)           (208)          -
Restructuring and asset impairment charges. . . .        (393)              -         (52)
Merger-related costs. . . . . . . . . . . . . . .           -             (44)          -
                                                   -----------      ----------  ----------
 Income (loss) before provision for income taxes.  $   (2,662)      $   2,758   $   1,883
                                                   ===========      ==========  ==========

Segment assets. . . . . . . . . . . . . . . . . .  $   10,174       $   4,955   $   5,630
Corporate assets. . . . . . . . . . . . . . . . .      12,877           9,676       6,701
                                                   -----------      ----------  ----------
 Total assets . . . . . . . . . . . . . . . . . .  $   23,051       $  14,631   $  12,331
                                                   ===========      ==========  ==========
<FN>
(1)    Non-segment gross margin in 1998 primarily related to certain costs incurred by
Digital  manufacturing  operations which were not allocated to the geographic segments
for  management  reporting  purposes.
</TABLE>

     Revenue  and  long-lived  assets related to operations in the United States
and  other  foreign  countries  as of and for the years ended December 31, 1998,
1997  and  1996  are  as  follows:

<TABLE>
<CAPTION>
(In millions)                 1998     1997     1996
===========================  =======  =======  =======
<S>                          <C>      <C>      <C>
Revenue:
 United States. . . . . . .  $13,981  $12,593  $10,014
 Other foreign countries. .   17,188   11,991    9,995
                             -------  -------  -------
   Total revenue. . . . . .  $31,169  $24,584  $20,009
                             =======  =======  =======

Long-lived assets:
 United States. . . . . . .  $ 5,490  $ 1,693  $ 1,376
 Other foreign countries. .    1,053      921      866
                             -------  -------  -------
   Total long-lived assets.  $ 6,543  $ 2,614  $ 2,242
                             =======  =======  =======
</TABLE>

                                       52
<PAGE>
     Additional information regarding revenue by products and services groups is
as  follows:

<TABLE>
<CAPTION>
Year ended December 31 (In millions)     1998         1997     1996
====================================  ===========    =======  =======
<S>                                   <C>            <C>      <C>
REVENUE:
 Enterprise. . . . . . . . . . . . .  $   10,700     $ 8,660  $ 6,228
 Commercial PC . . . . . . . . . . .      11,621      11,558   10,533
 Consumer PC . . . . . . . . . . . .       4,945       3,904    2,850
 Services. . . . . . . . . . . . . .       3,903(1)      462      398
                                      ----------     -------  -------
   Total . . . . . . . . . . . . . .  $   31,169     $24,584  $20,009
                                      ==========     =======  =======
<FN>
(1)  1998  services  revenue  is  presented  on a management reporting basis and
     includes  $106  million  of  products  revenue.
</TABLE>

NOTE 13.  COMMITMENTS, CONTINGENCIES, FINANCIAL INSTRUMENTS AND FACTORS THAT MAY
          AFFECT  FUTURE  OPERATIONS

Derivative  financial  instruments  and  fair  value  of  financial  instruments

     Compaq  primarily utilizes forward contracts and purchased foreign currency
options  to  reduce  its  exposure  to  potentially  adverse  changes in foreign
currency exchange rates. Compaq does not hold or issue financial instruments for
trading purposes nor does it hold or issue interest rate or leveraged derivative
financial  instruments.

     Compaq's  program  to  reduce  currency  exposure  associated  with the net
monetary  assets  of  Compaq's international subsidiaries includes agreements to
exchange  various  foreign currencies for U.S. dollars. At December 31, 1998 and
1997,  such  agreements  to  sell  foreign currencies included forward contracts
aggregating  $2.7  billion  and $1.5 billion, respectively. Generally, gains and
losses  associated  with  currency  rate  changes on these forward contracts are
recorded  currently  to income and are reflected in accounts receivable or other
current  liabilities  in  Compaq's  balance sheet, while the interest element is
recognized  over  the  life of each contract. The amount recorded in the balance
sheet  approximates  the  fair  value of such contracts at December 31, 1998 and
1997.  The  maturity  dates  of  the forward contracts which were outstanding at
December  31,  1998  ranged  from  two  days  to  nine  months.

     From  time  to  time,  Compaq  hedges  a portion of its anticipated but not
firmly  committed  sales  of  its  international  marketing  subsidiaries  using
purchased  foreign  currency options.  Realized and unrealized gains and the net
premiums  on these options are deferred and recognized as a component of revenue
in  the  same period that the related sales occur.  Option contracts aggregating
$394  million  and  $311 million were outstanding at December 31, 1998 and 1997,
respectively,  related  to the hedge of such sales for a nine-month period.  The
unrealized  gains  deferred  on  these contracts were not material. In addition,
Compaq  frequently utilizes forward contracts to protect Compaq from the effects
of currency fluctuations on anticipated but not firmly committed sales which are
expected  to  occur  within  a  three-month  period.  These  forward  contracts
generally  do  not  extend  beyond the end of any quarter or year.  Any gains or
losses  and  the interest element on these forward contracts are recognized as a
component  of  sales  during  each  quarter.

     Compaq  may,  from  time to time, hedge commitments for inventory purchases
and capital expenditures and other items constituting firm commitments. Any gain
or loss, if realized, or cost related to these contracts are recorded as part of
inventory  or  capital  items  upon  acquisition. At December 31, 1998 and 1997,
there were no contracts outstanding to hedge commitments for inventory purchases
and  capital  expenditures.

                                       53
<PAGE>
     In the event of a failure to honor one of these forward contracts by one of
the  banks  with which Compaq has contracted, management believes any loss would
be limited to the exchange rate differential from the time the contract was made
until  the  time  it  was compensated. To the extent Compaq has option contracts
outstanding, the amount of any loss resulting from a breach of contract would be
limited  to the amount of premiums paid for the options and the unrealized gain,
if  any,  related  to  such  contracts.

     Compaq  enters  into  various  other  types of financial instruments in the
normal  course  of  business.  Fair values for certain financial instruments are
based  on quoted market prices. For other financial instruments, fair values are
based  on  the  appropriate pricing models using current market information. The
amounts  ultimately realized upon settlement of these financial instruments will
depend on actual market conditions during the remaining life of the instruments.
Fair  values  of  cash  and  cash  equivalents, short-term investments, accounts
receivable,  accounts  payable  and  other  current liabilities reflected in the
December 31, 1998 and 1997 consolidated balance sheet approximate carrying value
at  these  dates.

Concentration  of  credit  risk

     Compaq's  cash,  cash  equivalents,  short-term  investments  and  accounts
receivable  are  subject  to potential credit risk. Compaq's cash management and
investment  policies  restrict investments to low risk, highly-liquid securities
and  Compaq performs periodic evaluations of the relative credit standing of the
financial  institutions  with  which  it  deals.

     Compaq  distributes products primarily through third-party resellers and as
a  result,  maintains individually significant accounts receivable balances from
various  major  resellers.  If  the  financial condition and operations of these
resellers  deteriorate,  Compaq's operating results could be adversely affected.
One customer accounted for 8% of sales for 1998 and 9% of accounts receivable at
December  31,  1998.  During  this period, no other customer of Compaq accounted
for  3%  or more of sales.  In 1998, Compaq's five largest resellers represented
approximately 19% of Compaq's 1998 sales.  The receivable balances from Compaq's
five  largest  resellers represented approximately 16% of accounts receivable at
December  31, 1998.  Compaq generally has experienced longer accounts receivable
cycles  in  its  emerging markets, in particular Asia Pacific and Latin America,
when  compared  to  its  U.S.  and  European markets. In the event that accounts
receivable cycles in these developing markets lengthen further or one or more of
Compaq's  larger  resellers  in  these regions fails, Compaq's operating results
could  be  adversely  affected.

Contingencies

     Certain  of  Compaq's  resellers  finance  a  portion  of their inventories
through  third-party  finance  companies.  Under  the  terms  of  the  financing
arrangements,  Compaq  may  be required, in limited circumstances, to repurchase
certain  products  from  the  finance  companies.  Additionally,  Compaq  has on
occasion  guaranteed  a  portion of certain resellers' outstanding balances with
third-party  finance  companies  and  financial  institutions.  Guarantees under
these  and other arrangements were not significant at December 31, 1998 or 1997.

     Compaq  offers  lease  financing  of  selected  products  to its customers.
Certain  sales-type  leases  are  originated  by  Compaq  and  either  sold on a
nonrecourse  basis or used as collateral for borrowings from certain third-party
financial institutions. Generally, Compaq receives all proceeds at the inception
of  the lease. The third-party financial institution assumes the credit risk and
the  administrative  responsibility for the collection of the lease receivables.
In the event of a default by a lessee, the financial institution's only recourse
is  generally  limited  to  the collateralized computer equipment. Compaq may be
required  to  use  its  "best  efforts"  to  remarket  the  computer  equipment.

                                       54
<PAGE>
Factors  that  may  affect  future  operations

     Compaq  participates in a highly volatile industry that is characterized by
fierce  industry-wide  competition  for  market  share.  Industry  participants
confront  aggressive  pricing  practices,  continually  changing customer demand
patterns, growing competition from well-capitalized high technology and consumer
electronics  companies,  and rapid technological developments carried out in the
midst  of  legal  disputes over intellectual property rights. Compaq's operating
results  could  be  adversely  affected  should Compaq be unable to successfully
integrate  acquired  entities,  anticipate  customer demand accurately, maintain
short  design  cycles  while  meeting  evolving  industry performance standards,
manage  its  product  transitions,  inventory levels and manufacturing processes
efficiently,  distribute  its  products  quickly in response to customer demand,
differentiate its products from those of its competitors or compete successfully
in  the  markets  for  its  new  products.

     Significant  numbers of components are purchased from single sources due to
technology, availability, price, quality or other considerations. Key components
and processes currently obtained from single sources include certain of Compaq's
displays,  microprocessors,  application  specific integrated circuits and other
custom  chips,  and  certain  processes  relating to construction of the plastic
housing  for  Compaq's computers. In addition, new products introduced by Compaq
often  initially  utilize  custom components obtained from only one source until
Compaq  has  evaluated  whether there is a need for additional suppliers. In the
event  that  a supply of a key single-sourced material process or component were
delayed  or  curtailed,  Compaq's ability to ship the related product in desired
quantities  and  in a timely manner could be adversely affected. Compaq attempts
to  mitigate these risks by working closely with key suppliers on product plans,
strategic  inventories  and  coordinated  product  introductions.

Litigation

     Compaq  is  subject  to  legal  proceedings  and  claims which arise in the
ordinary  course  of  business.  Management does not believe that the outcome of
any  of  those  matters  will  have  a  material  adverse  effect  on  Compaq's
consolidated  financial  position,  operating  results  or  cash  flows.

     Five  class  action  lawsuits  have  been consolidated in the United States
District  Court  for  the  Southern  District  of  Texas, Houston Division.  The
actions  are  purported class actions of all persons who purchased Compaq common
stock from July 10, 1997 through March 6, 1998, and the named defendants include
the  Company  and certain of its current and former officers and directors.  The
complaints  allege  that the defendants violated Sections 10(b) and 20(a) of the
Securities  Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by, among
other  things,  withholding  information  and making misleading statements about
channel  inventory  and  factoring of receivables in order to inflate the market
price  of  Compaq's  common  stock,  and  further  alleges  that  certain of the
individual  defendants  sold Compaq common stock at these inflated prices.  Lead
counsel  for  the  plaintiff  has  been appointed.  The plaintiffs seek monetary
damages,  interest,  costs  and  expenses.  Compaq  intends  to defend the suits
vigorously.

     Several  purported  class action lawsuits were filed against Digital during
1994  alleging  violations  of  the Federal Securities laws arising from alleged
misrepresentations  and omissions in connection with Digital's issuance and sale
of  Series  A  8-7/8% Cumulative Preferred Stock and Digital's financial results
for  the  quarter  ended  April  2,  1994.  During  1995,  the  lawsuits  were
consolidated  into  three  cases,  which  were  pending before the United States
District  Court  for  the  District  of  Massachusetts.  On  August 8, 1995, the
Massachusetts  federal court granted the defendants' motion to dismiss all three
cases in their entirety.  On May 7, 1996, the United States Court of Appeals for
the  First Circuit affirmed in part and reversed in part the dismissal of two of
the  cases,  and  remanded  for further proceedings.  The parties are proceeding
with  discovery.

                                       55
<PAGE>
Lease  commitments

     Compaq  leases  certain  manufacturing  and office facilities and equipment
under  noncancelable  operating  leases  with  terms  from one to 30 years. Rent
expense for 1998, 1997 and 1996 was $205 million, $135 million and $128 million,
respectively.

     Compaq's minimum rental commitments under noncancelable operating leases at
December 31, 1998 were approximately $249 million in 1999, $177 million in 2000,
$123 million in 2001, $100 million in 2002, $67 million in 2003 and $133 million
thereafter.

NOTE  14.  SUBSEQUENT  EVENTS

     In  February  1999,  Compaq  announced the execution of a definitive merger
agreement  with  Zip2  Corporation,  the  leading  provider of Internet platform
solutions  for  media  companies  and local e-commerce merchants.  The aggregate
purchase  price  is anticipated to be approximately $300 million.  Completion of
the  transaction  is  subject to customary conditions, including clearance under
the  Hart-Scott-Rodino  Antitrust  Improvements  Act.

     In  January  1999,  Compaq  announced  a  cash  tender offer for all of the
outstanding  shares  of  common  stock of Shopping.com, an on-line retailer that
offers  Internet  shoppers an array of consumer products.  In February the offer
was  successfully  concluded,  with  96%  of  the  shares  tendered.  Compaq  is
proceeding with the steps necessary to complete the merger, which is anticipated
in  March.  The  aggregate  purchase price for Shopping.com is anticipated to be
approximately $220 million.  Completion of the transaction is subject to certain
conditions,  including  clearance  under  the  Hart-Scott-Rodino  Antitrust
Improvements  Act.

                                       56
<PAGE>
SELECTED  QUARTERLY  UNAUDITED  FINANCIAL  DATA  (NOT  COVERED  BY  REPORT  OF
INDEPENDENT  ACCOUNTANTS)

     The  table  below  sets  forth selected unaudited financial information for
each  quarter  of  the  last  two  years.

<TABLE>
<CAPTION>
                                           1ST        2ND        3RD       4TH
(In millions, except per share amounts)  QUARTER    QUARTER    QUARTER   QUARTER
=======================================  ========  ==========  ========  ========
<S>                                      <C>       <C>         <C>       <C>
1998
Revenue . . . . . . . . . . . . . . . .  $  5,687  $   5,832   $  8,791  $ 10,859
Gross margin. . . . . . . . . . . . . .     1,023      1,110      2,185     2,871
Net income (loss)(1). . . . . . . . . .        16     (3,632)       115       758
Earnings (loss) per common share(3)
 Basic. . . . . . . . . . . . . . . . .  $   0.01  $   (2.33)  $   0.07  $   0.45
 Diluted. . . . . . . . . . . . . . . .  $   0.01  $   (2.33)  $   0.07  $   0.43

1997
Revenue . . . . . . . . . . . . . . . .  $  5,272  $   5,515   $  6,474  $  7,323
Gross margin. . . . . . . . . . . . . .     1,417      1,537      1,777     2,020
Net income(2) . . . . . . . . . . . . .       414        257        517       667
Earnings per common share(3)
 Basic. . . . . . . . . . . . . . . . .  $   0.28  $    0.17   $   0.34  $   0.44
 Diluted. . . . . . . . . . . . . . . .  $   0.27  $    0.17   $   0.33  $   0.42
<FN>
(1)  Includes  a  $3.2  billion  non-recurring,  non-tax-deductible charge in the
second quarter of 1998 and a $38 million non-recurring, non-taxable credit in the
fourth quarter of 1998 for purchased in-process technology in connection with the
Digital  acquisition,  and  a  $393  million  charge  for restructuring and asset
impairments  in  the  second  quarter  of  1998  in  connection  with the Digital
acquisition  and  the  closing  of  certain  Compaq  facilities.
(2)  Includes  a  $208  million  non-recurring,  non-tax-deductible  charge  for
purchased  in-process  technology  in connection with the Microcom acquisition in
the  second  quarter  of  1997, and $44 million of expenses related to the Tandem
merger  in  the  third  quarter  of  1997.
(3)  Earnings  per  common  share  are  computed  independently  for  each of the
quarters  presented  and  therefore  may  not  sum  to  the  total  for the year.
</TABLE>

PART  III

ITEMS  10  TO  13  INCLUSIVE.

     These  items  have been omitted in accordance with the general instructions
to  Form  10-K  Annual  Report.  The Registrant will file with the Commission in
March  1999,  pursuant to Regulation 14A, a definitive proxy statement that will
involve the election of directors.  The information required by these items will
be  included  in  such proxy statement and are incorporated herein by reference.

                                       57
<PAGE>
PART  IV

ITEM  14.  EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES,  AND REPORTS ON FORM 8-K.

     (a)  The  following  documents  are  filed  as  a  part  of  this  report:

     1.   Financial  Statements:
            Report  of  Independent  Accountants
            Consolidated  Balance  Sheet  at  December  31,  1998  and  1997
            Consolidated  Statement  of  Income  for the three years ended
              December 31, 1998
            Consolidated Statement of Cash Flows for the three years ended
              December 31, 1998
            Consolidated  Statement  of  Stockholders' Equity for the three
              years ended  December  31,  1998
            Notes  to  Consolidated  Financial  Statements

          Financial  Statement  Schedule:
            For  the  three  years  ended  December  31,  1998
            Schedule  II:  Valuation  and  Qualifying  Accounts

     2.   Exhibits.

     Exhibits  identified  in parentheses below, on file with the Securities and
Exchange  Commission  are  incorporated  by  reference  as  exhibits.

<TABLE>
<CAPTION>
EXHIBIT
  NO.                              DESCRIPTION  OF  EXHIBITS
-----                              -------------------------
<C>    <S>
  3.1  Restated Certificate of Amendment (Exhibit 3.1 to Form 10-K for the year ended
       December 31, 1997 ("1997 Form 10-K").
  3.2  Bylaws (Exhibit No. 3.2 to Form 10-Q for the quarter ended September 30, 1997).
10.1 1982 Stock Option Plan, as amended (Exhibit 10.1 to Form 10-Q for the quarter
ended June 30, 1989 ("1989 Second Quarter Form 10-Q")).
 10.2  1985 Stock Option Plan (Exhibit 10.3 to Form 10-K for the year ended December
       31, 1991 ("1991 Form 10-K")). *
 10.3  1985 Executive and Key Employees Stock Option Plan, as amended (Exhibit 10.3 to
       1989 Second Quarter Form 10-Q). *
 10.4  1985 Nonqualified Stock Option Plan, as amended (Exhibit 10.4 to 1989 Second
       Quarter Form 10-Q). *
 10.5  Forms of Stock Option Agreements relating to Exhibits 10.1 through 10.5 (Exhibit
       10.6 to Form 10-K for the year ended December 31, 1987). *
 10.6  1989 Equity Incentive Plan, as amended (Exhibit 10.6 to 1997 Form 10-K). *
 10.7  Form of Stock Option Notice relating to Exhibit 10.6, as amended (Exhibit 10.7 to
       1996 Form 10-K). *
 10.8  1995 Equity Incentive Plan, as amended (Exhibit 10.8 to 1997 Form 10-K). *
 10.9  Form of Stock Option Notice relating to Exhibit 10.8, as amended (Exhibit 10.9 to
       1996 Form 10-K). *
10.10  Bonus Incentive Plan (Exhibit 10.11 to Form 10-K for the year ended December 31, 1995). *
10.11  Stock Option Plan for Non-Employee Directors, as amended (Exhibit 10.11 to 1997 Form 10-K).*
10.12  Forms of Stock Option Notice relating to Exhibit 10.11 (Exhibit 10.9 to 1996 Form 10-K). *

                                       58
<PAGE>
10.13  Employment Agreement dated as of January 1, 1992 between Compaq and Eckhard
       Pfeiffer (Exhibit 10.15 to 1991 Form 10-K). *
10.14  Form of letter agreement between Compaq and its executive officers (Exhibit 10.16
       to 1991 Form 10-K). *
10.15  Deferred Compensation and Supplemental Savings Plan (Exhibit 4.1 to Registration
       Statement No. 333-42375 on Form S-8). *
10.16  First Amendment to Deferred Compensation and Supplemental Savings Plan
       (Exhibit 4.2 to Registration Statement No. 333-42375 on Form S-8). *
10.17  1998 Stock Option Plan (Exhibit 10.20 to Form 10-Q for the quarter ended
       March 31, 1998)*
10.18  1,000,000,000 Credit Agreement dated as of October 2, 1998, among Compaq
       Computer Corporation, the banks signatory thereto and Bank of America National
       Trust and Savings Association, as Administrative Agent (Exhibit 10.21 to Form 10-
       Q for the quarter ended September 30, 1998 ("1998 Third Quarter Form 10-Q")).
10.19  3,000,000,000 Credit Agreement dated as of September 22, 1997, among Compaq
       Computer Corporation, the banks signatory thereto and Bank of America National
       Trust and Savings Association, as Administrative Agent (Exhibit 10.19 to 1997
       Form 10-K).
10.20  Amendment No. 1 to $3,000,000,000 Credit Agreement dated as of October 2, 1998,
       among Compaq Computer Corporation, the banks signatory thereto and Bank of
       America National Trust and Savings Association, as Administrative Agent (Exhibit
       10.22 to 1998 Third Quarter Form 10-Q).
   21  Subsidiaries.
   23  Consent of PricewaterhouseCoopers LLP, independent accountants.
   27  Financial Data Schedule (EDGAR version only).
<FN>
     *  Indicates  management  contract  or  compensatory  plan  or  arrangement.
</TABLE>

     (b)  Reports  on  Form  8-K.

<TABLE>
<CAPTION>
<C>    <S>

  (i)  Report on Form 8-K dated October 14, 1998, containing Compaq's news release
       dated October 14, 1998, with respect to its earnings release for the third quarter
       of 1998.

 (ii)  Report on Form 8-K dated January 11, 1999, containing Compaq's news release
       dated January 11, 1999, announcing Compaq's agreement to acquire
       Shopping.com, an on-line retailer.

(iii)  Report on Form 8-K dated January 21, 1999, containing Compaq's news release
       dated January 21, 1999, announcing an amendment of Compaq's offer price for
       shares of Shopping.com.

 (iv)  Report on Form 8-K dated January 26, 1999, containing Compaq's news release
       dated January 26, 1999, announcing the creation of AltaVista Company.

  (v)  Report on Form 8-K dated January 27, 1999, containing Compaq's news release
       dated January 27, 1999, with respect to its earnings release for the fourth quarter
       of 1998.

                                       59
<PAGE>
 (vi)  Report on Form 8-K dated February 16, 1999, containing Compaq's news release
       dated February 16, 1999, announcing Compaq's agreement to acquire Zip2
       Corporation, the leading provider of Internet platform solutions for media and
       Compaq's news release dated February 16, 1999, announcing Compaq's
       successful conclusion of its tender offer for shares of Shopping.com.
</TABLE>

     COMPAQ,  the Compaq logo, and AltaVista, Registered in U.S. Patent and 
Trademark Office.  MICROSOFT is a registered trademark of Microsoft Corp.  
Other product names mentioned herein may be trademarks or registered trademarks
of their respective companies.

                                       60
<PAGE>
                                   SIGNATURES

     Pursuant  to  the  requirements  of  Section  13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its  behalf  by  the  undersigned, thereunto duly authorized on this 23rd day of
February,  1999.

                                   Compaq  Computer  Corporation


                                   By:  /s/  ECKHARD  PFEIFFER
                                        ---------------------------
                                             Eckhard  Pfeiffer, President and
                                             Chief  Executive  Officer


     Pursuant  to  the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by  the  following  persons  on  behalf of the
Registrant  in  the  capacities  and  on  the  dates  indicated.

       SIGNATURE                      TITLE                         DATE
       ---------                      -----                         ----


                           President  and  Director         February  23,  1999
/s/  ECKHARD  PFEIFFER    (principal executive officer)
-------------------------
    (Eckhard  Pfeiffer)


                          Senior Vice President             February  23,  1999
                          and Chief Financial Officer
/s/  EARL  L.  MASON      (principal financial officer and
--------------------      principal accounting officer)
    (Earl  L.  Mason) 


/s/  Benjamin M. Rosen    Chairman of the                   February  23,  1999
----------------------    Board of Directors
    (Benjamin M. Rosen)


/s/  Lawrence T. Babbio   Director                          February  23,  1999
-----------------------
    (Lawrence T. Babbio)


/s/  Judith L. Craven     Director                          February  23,  1999
-------------------------
    (Judith L. Craven)


/s/  Frank P. Doyle       Director                          February  23,  1999
-------------------------
    (Frank P. Doyle)


/s/  Robert Ted Enloe III Director                          February  23,  1999
-------------------------
   (Robert Ted Enloe, III)

                                       61
<PAGE>
/s/  George H. Heilmeier  Director                          February  23,  1999
-------------------------
    (George H. Heilmeier)


/s/  Peter N. Larson      Director                          February  23,  1999
-------------------------
    (Peter N. Larson)


/s/  Kenneth L. Lay       Director                          February  23,  1999
-------------------------
    (Kenneth L. Lay)


/s/  Thomas J. Perkins    Director                          February  23,  1999
-------------------------
    (Thomas J. Perkins)


/s/  Kenneth Roman        Director                          February  23,  1999
-------------------------
    (Kenneth Roman)


/s/  Lucille S. Salhany   Director                          February  23,  1999
-------------------------
    (Lucille S. Salhany)

                                       62
<PAGE>
                                                        SCHEDULE II

<TABLE>
<CAPTION>
                      COMPAQ COMPUTER CORPORATION
                   VALUATION AND QUALIFYING ACCOUNTS

Year ended December 31 (In millions)       1998     1997     1996
=======================================  ========  =======  =======
<S>                                      <C>       <C>      <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance, beginning of period. . . . . .  $   243   $  247   $  118
Additions due to acquisition. . . . . .      114        -        -
Additions charged to expense. . . . . .       61       19      160
Reductions. . . . . . . . . . . . . . .     (100)     (23)     (31)
                                         --------  -------  -------
Balance, end of period. . . . . . . . .  $   318   $  243   $  247
                                         ========  =======  =======

DEFERRED TAX ASSET VALUATION ALLOWANCE
Balance, beginning of period. . . . . .  $   134   $  121   $  119
Additions due to acquisition. . . . . .      562        -        -
Additions charged to expense. . . . . .       65       43        9
Reductions. . . . . . . . . . . . . . .      (77)     (30)      (7)
                                         --------  -------  -------
Balance, end of period. . . . . . . . .  $   684   $  134   $  121
                                         ========  =======  =======
</TABLE>

                                       63
<PAGE>