##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION



Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


For the Quarterly Period Ended March 31, 2000

Commission File Number 1-9026

COMPAQ COMPUTER CORPORATION



|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Delaware(State or other jurisdiction of
	incorporation or organization) |  | 76-0011617(I.R.S. Employer
	Identification No.)

20555 SH 249, Houston, Texas 77070

(281) 370-0670






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 [   ]

The number of shares of the registrants Common Stock,
$.01 par value, outstanding as of April 30, 2000, was
approximately 1.7 billion.



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---

TABLE OF CONTENTS



|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. Financial Statements                                                                 
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risks                          
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   



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COMPAQ COMPUTER CORPORATION

FORM 10-Q

Three Months Ended March 31, 2000


TABLE OF CONTENTS

|        |  |                                                                                        |  | 
|------- |  | -------------------------------------------------------------------------------------- |  | 
|       
|       
|       
|       
|PART I 
|       
|       
|       
|       
|       
|Item 1. |  | Financial Statements                                                                   |  | 
|       
|       
|       
|       
|       
|Item 2. |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |  | 
|       
|       
|       
|       
|       
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risks                            |  | 
|       
|       
|       
|       
|       
|PART II
|       
|       
|       
|       
|       
|Item 1. |  | Legal Proceedings                                                                      |  | 
|       
|       
|       
|       
|       
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                    |  | 
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                                                       |  | 
|       
|       
|       
|       
|        |  | Signatures                                                                             |  | 



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##### Table of Contents






PART  I.  FINANCIAL INFORMATION




ITEM  1.  Financial Statements

COMPAQ COMPUTER CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

|                                                 |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |       |       |        | 
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------------ | ----- | ------ | ------ | ----- | ----- | ------ | 
|                                                 |                                                                                                                     | March 31,                                                                                                                                  |                            | December 31,
|(In millions, except par value)                  |                                                                                                                     | 2000                                                                                                                                       |                            | 1999        
|                                                
|                                                 |                                                                                                                     | (Unaudited)                                                                                                                                |                            |             
|                                                
|ASSETS                                           |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |      
|                                                
|                                                
|                                                
|                                                
|                                                
|Current assets:                                  |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Cash and cash equivalents                                                                                           |                                                                                                                                            | $                          | 3,175        |       |        | $      | 2,666 |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Short-term investments                                                                                              |                                                                                                                                            |                            |             |       |        |        | 636   |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Accounts receivable, net                                                                                            |                                                                                                                                            |                            | 7,226        |       |        |        | 6,685 |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Inventories                                                                                                         |                                                                                                                                            |                            | 2,016        |       |        |        | 2,008 |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Deferred income taxes                                                                                               |                                                                                                                                            |                            | 1,356        |       |        |        | 1,460 |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Other assets                                                                                                        |                                                                                                                                            |                            | 387          |       |        |        | 394   |      
|                                                 |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |      
|                                                 |                                                                                                                     |                                                                                                                                            | Total current assets       |              |       | 14,160 |        |       |       | 13,849 | 
|                                                
|                                                
|                                                
|                                                
|                                                
|Property, plant and equipment, net               |                                                                                                                     |                                                                                                                                            | 3,362                      |              |       |        | 3,249  |      
|                                                
|                                                
|                                                
|                                                
|Other assets, net                                |                                                                                                                     |                                                                                                                                            | 10,479                     |              |       |        | 10,179 |      
|                                                 |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |      
|                                                 |                                                                                                                     | $                                                                                                                                          | 28,001                     |              |       | $      | 27,277 |      
|                                                 |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |      
|                                                
|LIABILITIES AND STOCKHOLDERS EQUITY            
|                                                
|                                                
|                                                
|                                                
|                                                
|Current liabilities:                             |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Short-term borrowings                                                                                               |                                                                                                                                            | $                          | 1,552        |       |        | $      | 453   |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Accounts payable                                                                                                    |                                                                                                                                            |                            | 3,973        |       |        |        | 4,380 |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Deferred income                                                                                                     |                                                                                                                                            |                            | 1,056        |       |        |        | 972   |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Accrued restructuring costs                                                                                         |                                                                                                                                            |                            | 862          |       |        |        | 1,002 |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Other current liabilities                                                                                           |                                                                                                                                            |                            | 4,816        |       |        |        | 5,031 |      
|                                                 |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |      
|                                                 |                                                                                                                     |                                                                                                                                            | Total current liabilities  |              |       | 12,259 |        |       |       | 11,838 | 
|                                                 |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |      
|Postretirement and other postemployment benefits |                                                                                                                     |                                                                                                                                            | 667                        |              |       |        | 605    |      
|                                                 |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |      
|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: |                                                                                                                                            |                            |              |       |        |        |       |      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                     | 1,723 million and 1,698 million shares at
        March 31, 2000 and 1,715 million and 1,694 million
         shares at December 31, 1999) |                            |              | 7,724 |        |        |       | 7,627 |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Retained earnings                                                                                                   |                                                                                                                                            |                            | 5,231        |       |        |        | 4,948 |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Accumulated other comprehensive income                                                                              |                                                                                                                                            |                            | 2,865        |       |        |        | 2,919 |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Treasury stock                                                                                                      |                                                                                                                                            |                            | (745         | )     |        |        | (660  | )    
|                                                 |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |      
|                                                 |                                                                                                                     |                                                                                                                                            | Total stockholders equity |              |       | 15,075 |        |       |       | 14,834 | 
|                                                 |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |      
|                                                 |                                                                                                                     | $                                                                                                                                          | 28,001                     |              |       | $      | 27,277 |      
|                                                 |                                                                                                                     |                                                                                                                                            |                            |              |       |        |        |      

See accompanying notes to interim condensed consolidated
financial statements.



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##### Table of Contents



COMPAQ COMPUTER CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Unaudited)


|                                                    |          |                     |       |       |       |   |       |       |       | 
|--------------------------------------------------- | -------- | ------------------- | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                                    |          |                    
|                                                    |          | Three months ended 
|                                                    |          | March 31,          
|                                                    |          |                    
|(In millions, except per share amounts)             |          | 2000                |       | 1999 
|                                                   
|                                                   
|Revenue:                                            |          |                     |       |       |       |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Products |                     | $     | 7,820 |       |   | $     | 7,819 |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Services |                     |       | 1,693 |       |   |       | 1,600 |      
|                                                    |          |                     |       |       |       |   |       |      
|                                                    |          | Total revenue       |       |       | 9,513 |   |       |       | 9,419 | 
|                                                    |          |                     |       |       |       |   |       |      
|Cost of sales:                                      |          |                     |       |       |       |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Products |                     |       | 6,111 |       |   |       | 6,007 |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Services |                     |       | 1,213 |       |   |       | 1,085 |      
|                                                    |          |                     |       |       |       |   |       |      
|                                                    |          | Total cost of sales |       |       | 7,324 |   |       |       | 7,092 | 
|                                                    |          |                     |       |       |       |   |       |      
|                                                   
|Selling, general and administrative                 |          |                     | 1,401 |       |       |   | 1,477 |      
|                                                   
|                                                   
|                                                   
|                                                   
|Research and development                            |          |                     | 356   |       |       |   | 404   |      
|                                                   
|                                                   
|                                                   
|                                                   
|Other (income) expense, net                         |          |                     | (46   | )     |       |   | 34    |      
|                                                    |          |                     |       |       |       |   |       |      
|                                                    |          |                     | 1,711 |       |       |   | 1,915 |      
|                                                    |          |                     |       |       |       |   |       |      
|                                                   
|Income before provision for income taxes            |          |                     | 478   |       |       |   | 412   |      
|                                                   
|                                                   
|                                                   
|                                                   
|Provision for income taxes                          |          |                     | 153   |       |       |   | 131   |      
|                                                    |          |                     |       |       |       |   |       |      
|Net income                                          |          | $                   | 325   |       |       | $ | 281   |      
|                                                    |          |                     |       |       |       |   |       |      
|Earnings per common share:                          |          |                     |       |       |       |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Basic    |                     | $     | 0.19  |       |   | $     | 0.17  |      
|                                                    |          |                     |       |       |       |   |       |      
|                                                    | Diluted  |                     | $     | 0.19  |       |   | $     | 0.16  |      
|                                                    |          |                     |       |       |       |   |       |      
|Shares used in computing earnings per common share: |          |                     |       |       |       |   |       |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Basic    |                     |       | 1,697 |       |   |       | 1,689 |      
|                                                    |          |                     |       |       |       |   |       |      
|                                                    | Diluted  |                     |       | 1,740 |       |   |       | 1,750 |      
|                                                    |          |                     |       |       |       |   |       |      

See accompanying notes to interim condensed consolidated
financial statements.



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##### Table of Contents



COMPAQ COMPUTER CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)


|                                                             |                                                                                                      |                                                                                          |                                                      |       |        |       |       |      |      |      |  
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----- | ------ | ----- | ----- | ---- | ---- | ---- | -
|                                                             |                                                                                                      |                                                                                         
|                                                             |                                                                                                      | Three months ended                                                                      
|                                                             |                                                                                                      | March 31,                                                                               
|                                                             |                                                                                                      |                                                                                         
|(In millions)                                                |                                                                                                      | 2000                                                                                     |                                                      | 1999 
|                                                            
|                                                            
|Cash flows from operating activities:                        |                                                                                                      |                                                                                          |                                                      |       |        |       |       |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net income                                                                                           |                                                                                          | $                                                    | 325   |        |       | $     | 281  |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Adjustments to reconcile net income to net cash provided by (used
         in) operating activities: |                                                                                          |                                                      |       |        |       |       |      |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                      | Depreciation and amortization                                                            |                                                      |       | 320    |       |       |      | 304  |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                      | Deferred income taxes                                                                    |                                                      |       | 90     |       |       |      | (130 | )   
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                      | Other                                                                                    |                                                      |       | (94    | )     |       |      |     |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                      | Changes in operating assets and liabilities, net of effects of
        acquired business |                                                      |       | (1,211 | )     |       |      | (377 | )   
|                                                             |                                                                                                      |                                                                                          |                                                      |       |        |       |       |     
|                                                             |                                                                                                      |                                                                                          | Net cash provided by (used in) operating activities  |       |        | (570  | )     |      |      | 78   |  
|                                                             |                                                                                                      |                                                                                          |                                                      |       |        |       |       |     
|Cash flows from investing activities:                        |                                                                                                      |                                                                                          |                                                      |       |        |       |       |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Capital expenditures, net                                                                            |                                                                                          |                                                      | (252  | )      |       |       | (216 | )   
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Proceeds from maturities of short-term investments                                                   |                                                                                          |                                                      | 636   |        |       |       |     |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Acquisition of business, net of cash acquired                                                        |                                                                                          |                                                      | (370  | )      |       |       | (219 | )   
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other investing activities                                                                           |                                                                                          |                                                      | (55   | )      |       |       | 33   |     
|                                                             |                                                                                                      |                                                                                          |                                                      |       |        |       |       |     
|                                                             |                                                                                                      |                                                                                          | Net cash used in investing activities                |       |        | (41   | )     |      |      | (402 | )
|                                                             |                                                                                                      |                                                                                          |                                                      |       |        |       |       |     
|Cash flows from financing activities:                        |                                                                                                      |                                                                                          |                                                      |       |        |       |       |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Increase in short-term borrowings                                                                    |                                                                                          |                                                      | 1,099 |        |       |       |     |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Common stock transactions, net                                                                       |                                                                                          |                                                      | 6     |        |       |       | 41   |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Dividends to stockholders                                                                            |                                                                                          |                                                      | (42   | )      |       |       | (34  | )   
|                                                             |                                                                                                      |                                                                                          |                                                      |       |        |       |       |     
|                                                             |                                                                                                      |                                                                                          | Net cash provided by financing activities            |       |        | 1,063 |       |      |      | 7    |  
|                                                             |                                                                                                      |                                                                                          |                                                      |       |        |       |       |     
|Effect of exchange rate changes on cash and cash equivalents |                                                                                                      |                                                                                          | 57                                                   |       |        |       | (165  | )   
|                                                             |                                                                                                      |                                                                                          |                                                      |       |        |       |       |     
|                                                             |                                                                                                      |                                                                                          | Net increase (decrease) in cash and cash equivalents |       |        | 509   |       |      |      | (482 | )
|                                                            
|                                                            
|                                                            
|                                                            
|Cash and cash equivalents at beginning of period             |                                                                                                      |                                                                                          | 2,666                                                |       |        |       | 4,091 |     
|                                                             |                                                                                                      |                                                                                          |                                                      |       |        |       |       |     
|Cash and cash equivalents at end of period                   |                                                                                                      | $                                                                                        | 3,175                                                |       |        | $     | 3,609 |     
|                                                             |                                                                                                      |                                                                                          |                                                      |       |        |       |       |     

See accompanying notes to interim condensed consolidated
financial statements.



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##### Table of Contents



COMPAQ COMPUTER CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)


Supplemental Cash Flow Information

|                           |                     |                 |     |      |   |   |     |     |  
|-------------------------- | ------------------- | --------------- | --- | ---- | - | - | --- | --- | -
|                           |                     |                
|                           |                     | Three months   
|                           |                     | ended March 31,
|                           |                     |                
|(In millions)              |                     | 2000            |     | 1999
|                          
|                          
|Acquisitions of businesses |                     |                 |     |      |   |   |     |    
|                          
|                          
|                          
|                          
|Fair value of:             |                     |                 |     |      |   |   |     |    
|                          
|                          
|                          
|                          
|                           | Assets acquired     |                 | $   | 471  |   |   | $   | 277 |  
|                          
|                          
|                          
|                          
|                           | Liabilities assumed |                 |     | (95  | ) |   |     | (26 | )
|                          
|                          
|                          
|                          
|                           | Options issued      |                 |     | (6   | ) |   |     | (32 | )
|                           |                     |                 |     |      |   |   |     |    
|Cash paid                  |                     | $               | 370 |      |   | $ | 219 |    
|                           |                     |                 |     |      |   |   |     |    

See accompanying notes to interim condensed consolidated
financial statements.



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##### Table of Contents



COMPAQ COMPUTER CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Basis of Presentation

The accompanying interim condensed consolidated financial
statements of Compaq Computer Corporation (Compaq) as
 of March 31, 2000 and December 31, 1999 and for the
three months ended March 31, 2000 and 1999 have been
prepared on substantially the same basis as Compaqs annual
consolidated financial statements and should be read in
conjunction with Compaqs Annual Report on Form 10-K
for the year ended December 31, 1999. In Compaqs
opinion, the interim consolidated financial statements reflect
all adjustments, consisting of only normal recurring adjustments,
 necessary for a fair presentation of the results for those
periods and the financial condition at those dates. The
consolidated results for interim periods are not necessarily
indicative of results to be expected for the full year.

Compaq completed the acquisition of Shopping.Com
(SDC) and purchased certain assets and liabilities of
 InaCom Corp. (Inacom) in February 1999 and February
2000, respectively. These transactions were accounted for as
purchases. In August 1999, Compaq sold a majority interest in
SDC, Zip2 Corp. and the AltaVista Company, a business acquired in
 the Digital Equipment Corporation (Digital)
acquisition, (collectively AltaVista). Accordingly,
Compaqs interim consolidated financial statements include
the results of operations and the estimated fair values of the
assets acquired and liabilities assumed from the respective dates
 of acquisition through divestiture or March 31, 2000, as
applicable.

Note 2  Recent Pronouncements

In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 133 (FAS 133), Accounting
for Derivative Instruments and Hedging Activities.
FAS 133, as amended, is effective for all fiscal years
beginning after June 15, 2000. Due to the FASBs
exposure draft issued March 3, 2000, which would amend
FAS 133, the unresolved status of numerous Derivative
Implementation Group interpretations, and the potential for
additional interpretations yet to be issued, Compaq management
decided not to adopt FAS 133 effective January 1, 2000.
Compaq will adopt FAS 133 effective January 1, 2001 and is
evaluating the effect that such adoption may have on its
consolidated results of operations and financial position.

In December 1999, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin No. 101
(SAB 101), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying
generally accepted accounting principles to revenue recognition
issues in financial statements. In March 2000, the SEC issued
Staff Accounting Bulletin No. 101A
(SAB 101A), Amendment: Revenue Recognition in
 Financial Statements. SAB 101A delays the
implementation date of SAB 101 for registrants with fiscal
years that begin between December 16, 1999 and
March 15, 2000. Compaq will adopt SAB 101 as required
in the second quarter of 2000 and is evaluating the effect that
such adoption may have on its consolidated results of operations
and financial position.

Note 3  Acquisitions

In February 2000, Compaq acquired certain configuration and
distribution assets of Inacom, a provider of information
technology services and products. This acquisition was accounted
for as a purchase. The purchase price, which is subject to
post-closing adjustments, was approximately $370 million in
cash and the assumption of certain related liabilities. The
estimated purchase price was allocated to the assets acquired and
 liabilities assumed, including goodwill of approximately
$115 million. Compaq also has entered into a services,
supply and sales agreement with Inacom that includes annual
commitments over the next three years, subject to certain
conditions, and related penalties in the event Compaq does not
meet the required targets. Compaq has also provided a commitment
to Inacom to enter into a $55.5 million secured credit
facility, subject to certain conditions. Compaq subsequently
established Custom Edge Incorporated (Custom
Edge) as a wholly owned subsidiary to operate the assets
acquired from Inacom. Proforma statements of operations
reflecting this acquisition are not shown as such disclosure is
not material.



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##### Table of Contents



Note 4  Restructuring and Related Charges

In September 1999, Compaqs management approved a
restructuring plan to realign Compaqs organization, reduce
infrastructure and overhead, and eliminate excess and duplicative
 facilities. Restructuring and related charges of
$868 million ($600 million, net of tax) were expensed.
These charges were composed of $787 million of accrued
restructuring costs, $58 million of related asset impairment
 charges and a $23 million pension curtailment loss to
recognize a change in Compaqs projected pension benefit
obligation in connection with employee separations. Components of
 accrued restructuring costs and amounts charged against the
provision as of March 31, 2000 were as follows:

|                                           |  |           |     |              |  |              |      |              |  |           |     |  |  |   |     |   |  |   |     | 
|------------------------------------------ |  | --------- | --- | ------------ |  | ------------ | ---- | ------------ |  | --------- | --- |  |  | - | --- | - |  | - | --- | 
|                                           |  | Beginning |     |              |  | December 31, |      |              |  | March 31,
|(In millions)                              |  | Accrual   |     | Expenditures |  | 1999         |      | Expenditures |  | 2000     
|                                           |  |           |     |              |  |              |      |              |  |          
|Employee separations                       |  | $         | 491 |              |  | $            | (68  | )            |  | $         | 423 |  |  | $ | (40 | ) |  | $ | 383 | 
|                                          
|                                          
|                                          
|                                          
|Facility closure costs                     |  |           | 96  |              |  |              |     |              |  |           | 96  |  |  |   |    |   |  |   | 96  | 
|                                          
|                                          
|                                          
|                                          
|Contract cancellation and other exit costs |  |           | 200 |              |  |              | (167 | )            |  |           | 33  |  |  |   | (1  | ) |  |   | 32  | 
|                                           |  |           |     |              |  |              |      |              |  |           |     |  |  |   |     |   |  |   |     | 
|                                           |  | $         | 787 |              |  | $            | (235 | )            |  | $         | 552 |  |  | $ | (41 | ) |  | $ | 511 | 
|                                           |  |           |     |              |  |              |      |              |  |           |     |  |  |   |     |   |  |   |     | 

Accrued restructuring costs for employee separations related to
approximately 7,000 employees worldwide affecting the
majority of business functions, job classes and regions,
predominantly occurring in North America and Europe. Employee
separation benefits include severance, medical and other
benefits.

In June 1998, Compaq recorded a restructuring charge of
approximately $1.7 billion to integrate the operations of
Compaq and Digital, consolidate duplicative facilities, improve
service delivery and reduce overhead. Approximately
$1.5 billion was related to the acquisition of Digital and
recorded as a component of purchase accounting and
$286 million related to Compaq and was charged to
operations. Compaq has completed most of the actions contemplated
 under the restructuring plan. Accrued restructuring costs at
March 31, 2000 include amounts for actions that have already
 been taken, but for which expenditures have not yet been made.
Accrued restructuring costs as of March 31, 2000 and amounts
 charged against the provision were as follows:

|                       |  |           |       |              |  |              |        |              |  |           |     |  |  |   |     |   |  |   |     | 
|---------------------- |  | --------- | ----- | ------------ |  | ------------ | ------ | ------------ |  | --------- | --- |  |  | - | --- | - |  | - | --- | 
|                       |  | Beginning |       |              |  | December 31, |        |              |  | March 31,
|(In millions)          |  | Accrual   |       | Expenditures |  | 1999         |        | Expenditures |  | 2000     
|                       |  |           |       |              |  |              |        |              |  |          
|Employee separations   |  | $         | 1,131 |              |  | $            | (962   | )            |  | $         | 169 |  |  | $ | (72 | ) |  | $ | 97  | 
|                      
|                      
|                      
|                      
|Facility closure costs |  |           | 414   |              |  |              | (184   | )            |  |           | 230 |  |  |   | (22 | ) |  |   | 208 | 
|                      
|                      
|                      
|                      
|Relocation             |  |           | 99    |              |  |              | (65    | )            |  |           | 34  |  |  |   | (1  | ) |  |   | 33  | 
|                      
|                      
|                      
|                      
|Other exit costs       |  |           | 100   |              |  |              | (83    | )            |  |           | 17  |  |  |   | (4  | ) |  |   | 13  | 
|                       |  |           |       |              |  |              |        |              |  |           |     |  |  |   |     |   |  |   |     | 
|                       |  | $         | 1,744 |              |  | $            | (1,294 | )            |  | $         | 450 |  |  | $ | (99 | ) |  | $ | 351 | 
|                       |  |           |       |              |  |              |        |              |  |           |     |  |  |   |     |   |  |   |     | 

Compaq expects to substantially complete the initiatives
contemplated in its restructuring plans during the remainder of
2000.

Total regular employee headcount increased from approximately
67,100 at December 31, 1999 to approximately 69,000 at
March 31, 2000. The increase resulted primarily from
employee additions of approximately 2,500 related to the
Custom Edge acquisition. This increase was offset in part by
employee separations of approximately 500 and 1,600 due to
the 1998 and 1999 restructuring actions, respectively. As of
March 31, 2000, the remaining employee separations under the
 1998 and 1999 restructuring plans were approximately 1,000 and
3,000, respectively. In addition to the above factors, employee
headcount increased as a result of selective hiring of specialist
 skills and capabilities in services and high-end enterprise.



---



##### Table of Contents



Note 5  Certain Balance Sheet Components

Raw materials, work in progress and finished goods were
$317 million, $391 million and $1.3 billion,
respectively, at March 31, 2000 and $448 million,
$394 million and $1.2 billion, respectively, at
December 31, 1999.

Accumulated depreciation was $3.0 billion and
$2.8 billion at March 31, 2000 and December 31,
1999, respectively.

At March 31, 2000 and December 31, 1999, Compaq held
$6.6 billion of equity investments, included in other
non-current assets. Two of these investments accounted for
84 percent of this balance at March 31, 2000. As of
May 8, 2000, the fair value of Compaqs available for
sale investments was reduced to $3.3 billion, predominately
due to lower market values of publicly traded securities.

Compaq has $1.5 billion and $1.0 billion short-term
commercial paper programs that are supported by a $3 billion
 credit facility. Outstanding commercial paper reduces available
borrowings under this credit facility. At March 31, 2000,
Compaq had $978 million and $538 million in commercial
paper outstanding under the programs, respectively, with a
weighted average interest rate of 6.1 percent. At
December 31, 1999, Compaq had $453 million in
commercial paper outstanding under the $1.5 billion program,
 with a weighted average interest rate of 6.4 percent. The
carrying amounts of the borrowings under the commercial paper
programs approximate their fair values.

On February 22, 2000, the board of directors of Compaq
approved a cash dividend of $0.025 per share of common
stock, or approximately $42 million, to shareholders of
record as of March 31, 2000, payable on April 20, 2000.
 During the first quarter of 1999, a cash dividend of
$0.02 per share of common stock was declared.

Note 6  Comprehensive Income

The components of comprehensive income, net of tax, are listed
below:

|                                   |                                  |              |     |      |   |   |     |     |  
|---------------------------------- | -------------------------------- | ------------ | --- | ---- | - | - | --- | --- | -
|                                   |                                  |             
|                                   |                                  | Three months
|                                   |                                  | ended       
|                                   |                                  | March 31,   
|                                   |                                  |             
|(In millions)                      |                                  | 2000         |     | 1999
|                                   |                                  |              |     |     
|Net income                         |                                  | $            | 325 |      |   | $ | 281 |    
|                                  
|                                  
|                                  
|                                  
|Other comprehensive income (loss): |                                  |              |     |      |   |   |     |    
|                                  
|                                  
|                                  
|                                  
|                                   | Foreign currency translations    |              |     | 1    |   |   |     | (13 | )
|                                  
|                                  
|                                  
|                                  
|                                   | Unrealized losses on investments |              |     | (55  | ) |   |     |    |  
|                                   |                                  |              |     |      |   |   |     |    
|Comprehensive income               |                                  | $            | 271 |      |   | $ | 268 |    
|                                   |                                  |              |     |      |   |   |     |    



---



##### Table of Contents



Note 7  Other Income and Expense

Other (income) and expense consisted of the following:

|                             |  |              |     |      |  |   |     |  
|---------------------------- |  | ------------ | --- | ---- |  | - | --- | -
|                             |  |             
|                             |  | Three months
|                             |  | ended       
|                             |  | March 31,   
|                             |  |             
|(In millions)                |  | 2000         |     | 1999
|                             |  |              |     |     
|Interest and dividend income |  | $            | (46 | )    |  | $ | (52 | )
|                            
|                            
|                            
|                            
|Investment income, net       |  |              | (68 | )    |  |   | (16 | )
|                            
|                            
|                            
|                            
|Interest expense             |  |              | 57  |      |  |   | 41  |  
|                            
|                            
|                            
|                            
|Currency losses, net         |  |              | 6   |      |  |   | 31  |  
|                            
|                            
|                            
|                            
|Other, net                   |  |              | 5   |      |  |   | 30  |  
|                             |  |              |     |      |  |   |     |  
|                             |  | $            | (46 | )    |  | $ | 34  |  
|                             |  |              |     |      |  |   |     |  

Note 8  Earnings per Common Share

Basic earnings 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 43 million and 61 million for the
 three months ended March 31, 2000 and 1999, respectively,
were used in the calculation of diluted earnings per common
share. Stock options to purchase 44 million and
36 million shares of common stock for the three months ended
 March 31, 2000 and 1999, respectively, were outstanding but
 not included in the computation of diluted earnings per common
share because the option exercise price was greater than the
average market price of the common shares.

Note 9  Segment Data

Summary financial data by business segment follows:

|                                  |                         |                 |   |       |   |  |   |       |  
|--------------------------------- | ----------------------- | --------------- | - | ----- | - |  | - | ----- | -
|                                  |                         |                
|                                  |                         | Three months   
|                                  |                         | ended March 31,
|                                  |                         |                
|(In millions)                     |                         | 2000            |   | 1999 
|                                  |                         |                 |   |      
|Enterprise Solutions and Services |                         |                 |   |       |   |  |   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Revenue                 |                 | $ | 4,726 |   |  | $ | 4,930 |  
|                                 
|                                 
|                                 
|                                 
|                                  | Operating income        |                 |   | 568   |   |  |   | 652   |  
|                                 
|                                 
|                                 
|                                 
|Commercial Personal Computing     |                         |                 |   |       |   |  |   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Revenue                 |                 |   | 2,872 |   |  |   | 3,098 |  
|                                 
|                                 
|                                 
|                                 
|                                  | Operating income (loss) |                 |   | (19   | ) |  |   | 24    |  
|                                 
|                                 
|                                 
|                                 
|Consumer                          |                         |                 |   |       |   |  |   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Revenue                 |                 |   | 1,832 |   |  |   | 1,357 |  
|                                 
|                                 
|                                 
|                                 
|                                  | Operating income        |                 |   | 82    |   |  |   | 82    |  
|                                 
|                                 
|                                 
|                                 
|Other                             |                         |                 |   |       |   |  |   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Revenue                 |                 |   | 83    |   |  |   | 34    |  
|                                 
|                                 
|                                 
|                                 
|                                  | Operating income (loss) |                 |   | 18    |   |  |   | (76   | )
|                                 
|                                 
|                                 
|                                 
|Consolidated segment totals       |                         |                 |   |       |   |  |   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Revenue                 |                 | $ | 9,513 |   |  | $ | 9,419 |  
|                                 
|                                 
|                                 
|                                 
|                                  | Operating income        |                 | $ | 649   |   |  | $ | 682   |  



---



##### Table of Contents



A reconciliation of Compaqs consolidated segment operating
income to consolidated income before provision for income taxes
follows:

|                                          |  |              |      |      |  |   |      |  
|----------------------------------------- |  | ------------ | ---- | ---- |  | - | ---- | -
|                                          |  |             
|                                          |  | Three months
|                                          |  | ended       
|                                          |  | March 31,   
|                                          |  |             
|(In millions)                             |  | 2000         |      | 1999
|                                          |  |              |      |     
|Consolidated segment operating income     |  | $            | 649  |      |  | $ | 682  |  
|                                         
|                                         
|                                         
|                                         
|Corporate and unallocated shared expenses |  |              | (171 | )    |  |   | (270 | )
|                                          |  |              |      |      |  |   |      |  
|Income before provision for income taxes  |  | $            | 478  |      |  | $ | 412  |  
|                                          |  |              |      |      |  |   |      |  

Note 10  Litigation

Compaq is subject to legal proceedings and claims that arise in
the ordinary course of business. Compaq 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.

Compaq is vigorously defending two consolidated class action
lawsuits alleging violations of Section 10(b) and
Section 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder, in the United States
District Court for the Southern District of Texas, Houston
Division. These lawsuits are against named defendants including
Compaq and certain of its current and former officers and
directors. One lawsuit was filed in 1998 and the other in 1999.
The 1998 litigation consolidates five class action lawsuits,
brought by persons who purchased Compaq common stock from
July 10, 1997 through March 6, 1998. Among the
allegations in the 1998 lawsuits are that the defendants withheld
 information and made 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 the inflated prices. The 1999 litigation consolidates
over 30 class action lawsuits. The 1999 litigation is brought by
purchasers of Compaq common stock between January 27, 1999
and April 9, 1999 and alleges, among other things, that
named defendants and Compaq issued a series of materially false
and misleading statements that failed to disclose that sales to
small and medium size businesses were slow in January 1999 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 the inflated prices. Lead counsels
for the plaintiffs have been appointed in both the 1998 and 1999
litigation. The plaintiffs seek monetary damages, interest, costs
 and expenses in both the 1998 and 1999 litigation. In the 1998
litigation, the court denied Compaqs motion for
reconsideration. Compaq has opposed class certification and is
awaiting a ruling from the court in this same litigation. In the
interim, discovery is ongoing and a trial date has been set for
April 2001. In the 1999 litigation, Compaq has filed a motion
seeking to have the complaint dismissed by the court.

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 percent 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.

Compaq is vigorously defending seven consumer class action
lawsuits alleging various defects in computers sold by Compaq.
These lawsuits are pending in Texas, North Carolina, Illinois and
 Washington. All of these cases are in the discovery stage.



---



##### Table of Contents








|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
        Condition and Results of Operations

Founded in 1982, Compaq Computer Corporation
(Compaq), a Fortune Global 100 company, is the
largest supplier of computing systems in the world. Compaq
designs, develops, manufactures 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.

The following discussion should be read in conjunction with the
interim consolidated financial statements presented in
Item 1.

Results of Operations

Compaq completed the acquisition of Shopping.Com
(SDC) and purchased certain assets and liabilities of
 InaCom Corp. (Inacom) in February 1999 and February
2000, respectively. These transactions were accounted for as
purchases. In August 1999, Compaq sold a majority interest in
SDC, Zip2 Corp. and the AltaVista Company, a business acquired in
 the Digital Equipment Corporation (Digital)
acquisition, (collectively AltaVista). Accordingly,
Compaqs interim consolidated financial statements include
the results of operations and the estimated fair values of the
assets acquired and liabilities assumed from the respective dates
 of acquisition through divestiture or March 31, 2000, as
applicable.

Summary financial data by business segment follows:

|                                  |                         |                    |   |       |   |  |   |       |  
|--------------------------------- | ----------------------- | ------------------ | - | ----- | - |  | - | ----- | -
|                                  |                         |                   
|                                  |                         | Three months ended
|                                  |                         | March 31,         
|                                  |                         |                   
|                                  |                         | 2000               |   | 1999 
|(In
millions)                     |                         |                    |   |      
|Enterprise Solutions and Services |                         |                    |   |       |   |  |   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Revenue                 |                    | $ | 4,726 |   |  | $ | 4,930 |  
|                                 
|                                 
|                                 
|                                 
|                                  | Operating income        |                    |   | 568   |   |  |   | 652   |  
|                                 
|                                 
|                                 
|                                 
|Commercial Personal Computing     |                         |                    |   |       |   |  |   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Revenue                 |                    |   | 2,872 |   |  |   | 3,098 |  
|                                 
|                                 
|                                 
|                                 
|                                  | Operating income (loss) |                    |   | (19   | ) |  |   | 24    |  
|                                 
|                                 
|                                 
|                                 
|Consumer                          |                         |                    |   |       |   |  |   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Revenue                 |                    |   | 1,832 |   |  |   | 1,357 |  
|                                 
|                                 
|                                 
|                                 
|                                  | Operating income        |                    |   | 82    |   |  |   | 82    |  
|                                 
|                                 
|                                 
|                                 
|Other                             |                         |                    |   |       |   |  |   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Revenue                 |                    |   | 83    |   |  |   | 34    |  
|                                 
|                                 
|                                 
|                                 
|                                  | Operating income (loss) |                    |   | 18    |   |  |   | (76   | )
|                                 
|                                 
|                                 
|                                 
|Consolidated segment totals       |                         |                    |   |       |   |  |   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Revenue                 |                    | $ | 9,513 |   |  | $ | 9,419 |  
|                                 
|                                 
|                                 
|                                 
|                                  | Operating income        |                    | $ | 649   |   |  | $ | 682   |  

A reconciliation of Compaqs consolidated segment operating
income to consolidated income before provision for income taxes
follows:

|                                          |  |                    |      |      |  |   |      |  
|----------------------------------------- |  | ------------------ | ---- | ---- |  | - | ---- | -
|                                          |  |                   
|                                          |  | Three months ended
|                                          |  | March 31,         
|                                          |  |                   
|                                          |  | 2000               |      | 1999
|(In millions)                             |  |                    |      |     
|Consolidated segment operating income     |  | $                  | 649  |      |  | $ | 682  |  
|                                         
|                                         
|                                         
|                                         
|Corporate and unallocated shared expenses |  |                    | (171 | )    |  |   | (270 | )
|                                          |  |                    |      |      |  |   |      |  
|Income before provision for income taxes  |  | $                  | 478  |      |  | $ | 412  |  
|                                          |  |                    |      |      |  |   |      |  



---



##### Table of Contents



Overview

Consolidated revenue for the quarter was $9.5 billion, an
increase of 1 percent (4 percent at constant currency)
compared with the prior year quarter. Revenue benefited from
strong unit growth in the Consumer segment, partially offset by
Y2K market softness, a reduction in channel inventory and
weakness in Europe. Revenue from products and services was
$7.8 billion and $1.7 billion, respectively. Services
revenue consists primarily of the sale of services by the
Enterprise segment and also includes Internet access fees earned
by the Consumer segment.

Consolidated gross margin was $2.2 billion, a decline of
1.7 percentage points compared with the first quarter of
1999, and an increase of 0.8 percentage points from the
fourth quarter of 1999. Contributing to the decline in gross
margin was a decrease in Enterprise Solutions and Services
revenue and higher Consumer revenue as a percentage of
consolidated revenue.

Compared with the first quarter of 1999, consolidated operating
expense decreased $124 million, or 7 percent, in the
current quarter. Operating expense also declined as a percentage
of revenue to 18.5 percent versus 20 percent in the
same period last year. The reduction in operating expense
primarily reflects restructuring actions initiated during 1998
and 1999. Operating expense has declined in whole dollars over
the past three quarters, highlighting managements intense
focus on reducing Compaqs cost structure.

Compaq reported consolidated net income of $325 million, or
$0.19 per diluted common share, for the first quarter of
2000 compared to consolidated net income of $281 million, or
 $0.16 per diluted common share, for the corresponding
period in 1999. Adjusted for net after tax investment gains of
$44 million and $10 million, earnings per diluted
common share were $0.16 and $0.15 for the first quarters of 2000
and 1999, respectively.

Enterprise Solutions and Services

Enterprise Solutions and Services provides business-critical
servers, industry-standard servers, storage products and Compaq
NonStop eBusiness solutions, as well as professional
 and customer services.

Revenue

Revenue from the Enterprise segment consisted of the following:

|                          |  |                    |       |      |  |   |       | 
|------------------------- |  | ------------------ | ----- | ---- |  | - | ----- | 
|                          |  |                   
|                          |  | Three months ended
|                          |  | March 31,         
|                          |  |                   
|(In millions)             |  | 2000               |       | 1999
|                          |  |                    |       |     
|Industry Standard Servers |  | $                  | 1,191 |      |  | $ | 1,141 | 
|                         
|                         
|                         
|                         
|Storage Products          |  |                    | 1,067 |      |  |   | 1,221 | 
|                         
|                         
|                         
|                         
|Business Critical Servers |  |                    | 702   |      |  |   | 782   | 
|                         
|                         
|                         
|                         
|Customer Services*        |  |                    | 1,106 |      |  |   | 1,090 | 
|                         
|                         
|                         
|                         
|Professional Services*    |  |                    | 659   |      |  |   | 644   | 
|                         
|                         
|                         
|                         
|Other                     |  |                    | 1     |      |  |   | 52    | 
|                          |  |                    |       |      |  |   |       | 
|                          |  | $                  | 4,726 |      |  | $ | 4,930 | 
|                          |  |                    |       |      |  |   |       | 



| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | Services revenue includes revenue from the sale of
         products made in connection with providing solutions and
        services to customers through these divisions.



---



##### Table of Contents



Enterprise Solutions and Services revenue decreased
$204 million, or 4 percent, compared with the first
quarter of 1999. This business declined due to Y2K lockdowns,
channel inventory reductions and a weak European market. The
Enterprise segment represented 50 percent of consolidated
revenue during the quarter, a decrease of 2 percentage
points from the first quarter of 1999.

Industry standard server demand remained strong in all regions
except Europe, with high-end 8-way servers shipping at a record
pace. Compaq Himalaya server sales also increased.
Alpha sales decreased due to a manufacturing plant transition in
North America and customer anticipation of the May 2000 launch of
 the next generation Compaq AlphaServer
systems  code name Wildfire. More than 120
 advance orders for Wildfire have been received prior to product
launch and Compaq expects to ship approximately 200 units
during the second quarter of 2000.

A large portion of Compaqs Storage Products revenue is
driven by server sales. The downturn in Europe for servers also
affected Storage revenue. This impact, coupled with a planned
two-week reduction in channel inventory, led to the decline in
attached Storage revenue during the quarter when compared to the
same period last year. External storage, SANs and software sales
were strong with more than 50 percent growth in revenue when
 compared to the first quarter of 1999.

Total services revenue grew 2 percent with the Y2K lockdown
having a marked effect on professional service engagements.

Operating Income

Enterprise Solutions and Services operating income declined
$84 million, or 13 percent, in the first quarter of
2000 as compared to the corresponding period in 1999. Lower
operating income resulted from the decline in revenue as well as
lower gross margin, partially offset by a decrease in operating
expense. Gross margin as a percentage of revenue declined
slightly, primarily due to lower margins in the service
businesses, which experienced a shift toward lower margin
services during the quarter. Further, additional costs were
incurred to strengthen skilled resources in order to prepare for
anticipated e-business and Windows 2000 opportunities. Industry
Standard Servers gross margin improved during the quarter due to
the shift in product mix towards higher-end 8-way server systems.
 Operating expense declined in whole dollars and as a percentage
of revenue in the Enterprise segment during the quarter as
compared to the first quarter of 1999 due to stringent cost
control practices.

Commercial Personal Computing

Commercial Personal Computing delivers standards-based computing
emphasizing Internet access through workstations, desktops,
portables, monitors, Internet access devices and life-cycle
management products. As previously announced, Compaq completed
the purchase of key assets from Inacom during the quarter and
subsequently established Custom Edge Incorporated
(Custom Edge) as a wholly owned subsidiary. This
purchase adds custom configuration capabilities and direct
fulfillment logistics that enable Compaq to better meet customer
needs in North America. Compaq has already migrated 40 major
accounts to the Custom Edge facilities and expects this number to
 increase during the second quarter of 2000.



| |        
| | -------
| | Revenue

Commercial Personal Computing revenue decreased
$226 million, or 7 percent, in the first quarter of
2000 as compared with the first quarter of 1999. This segment
represented 30 percent of consolidated revenue during the
period, a decrease of 3 percentage points from the first
quarter of 1999. Lower revenue from the Commercial segment
reflects a 12 percent decline in unit sales compared with
last years quarter, which was most evident in the Desktop
division. The decrease in revenue resulted from Compaqs
decision to be more selective and enter into more profitable
sales transactions. The Commercial segment was also affected by
an industry slow down caused by remaining Y2K effects in the
commercial desktop PC marketplace that greatly affected January
performance.



---



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| |                 
| | ----------------
| | Operating Income

Commercial Personal Computing operating income decreased from
$24 million in the first quarter of 1999 to a loss of
$19 million in the first quarter of 2000. The operating loss
 resulted from lower revenue and gross margin, partially offset
by a decline in operating expense. While the Commercial segment
posted a loss for the quarter, the loss has declined
75 percent from the previous quarter. Further, operating
losses have declined significantly over the past three quarters.
The operating loss of $225 million reported in the second
quarter of 1999 was reduced to $169 million and
$79 million in the third and fourth quarters of 1999,
respectively. Gross margin as a percentage of revenue declined
from first quarter 1999, as market conditions remain competitive
in this business. Operating expenses improved as a percentage of
revenue due to a continued focus on reducing operating costs.

Consumer

The Consumer segment targets home users with Internet-ready
desktop PCs, portables, printers and related products, as well as
 Internet access and e-services.



| |        
| | -------
| | Revenue

Consumer revenue increased $475 million, or 35 percent,
 in the first quarter of 2000 compared with the corresponding
quarter in 1999. This business represented 19 percent of
consolidated revenue during the period, an increase of
5 percentage points from the first quarter of 1999. The
increase in revenue during the quarter resulted from increasing
demand, evidenced by unit growth of 50 percent from the
first quarter of 1999. Compaqs continued strategy of
expansion into overseas retail markets resulted in notable
revenue growth. Europe, Middle East and Africa grew
46 percent, Latin America grew 103 percent, and
Asia-Pacific grew 71 percent.



| |                 
| | ----------------
| | Operating Income

Consumer operating income remained flat at $82 million in
the first quarter of 1999 and 2000, despite the increase in
revenue, primarily due to a decline in the gross margin
percentage. Compared to the first quarter of 1999, gross margin
declined due to more aggressive pricing. However, gross margin
improved when compared to the fourth quarter of 1999, primarily
due to a decline in memory costs. The beyond the box
business, which includes printers as well as Internet access and
traffic revenue, continued to grow during the quarter,
representing more than 15 percent of operating income.
Operating expenses declined slightly as a percentage of revenue
during the quarter as benefits were gained from economies of
scale.

Other

Revenue and operating income in the Other category improved
during the quarter primarily due to growth in the business of
Compaq Financial Services Corporation (CFS), a wholly
 owned financing subsidiary, which reported an increase in
revenue of 135 percent. CFS now operates in
35 countries providing leasing, financial asset management
and associated services to support the full range of Compaq
product and service offerings.

Corporate and Unallocated Shared Expenses

The results of the business segments exclude separately managed
corporate and unallocated shared expenses, which are comprised
primarily of general and administrative costs as well as other
income and expense items not controlled by the business segments.
 Corporate and unallocated shared expenses decreased from
$270 million in the first quarter of 1999 to
$171 million in the first quarter of 2000. This decrease
resulted primarily from a favorable change in other income and
expense items, which was driven by a net investment gain of
$68 million related to Compaqs strategic investment
portfolio.



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##### Table of Contents



Restructuring and Related Charges

In September 1999, Compaqs management approved a
restructuring plan to realign Compaqs organization, reduce
infrastructure and overhead, and eliminate excess and duplicative
 facilities. Restructuring and related charges of
$868 million ($600 million, net of tax) were expensed.
These charges were composed of $787 million of accrued
restructuring costs, $58 million of related asset impairment
 charges and a $23 million pension curtailment loss to
recognize a change in Compaqs projected pension benefit
obligation in connection with employee separations. Components of
 accrued restructuring costs and amounts charged against the
provision as of March 31, 2000 were as follows:

|                                           |  |           |     |              |  |              |      |              |  |           |     |  |  |   |     |   |  |   |     | 
|------------------------------------------ |  | --------- | --- | ------------ |  | ------------ | ---- | ------------ |  | --------- | --- |  |  | - | --- | - |  | - | --- | 
|                                           |  | Beginning |     |              |  | December 31, |      |              |  | March 31,
|(In millions)                              |  | Accrual   |     | Expenditures |  | 1999         |      | Expenditures |  | 2000     
|                                           |  |           |     |              |  |              |      |              |  |          
|Employee separations                       |  | $         | 491 |              |  | $            | (68  | )            |  | $         | 423 |  |  | $ | (40 | ) |  | $ | 383 | 
|                                          
|                                          
|                                          
|                                          
|Facility closure costs                     |  |           | 96  |              |  |              |     |              |  |           | 96  |  |  |   |    |   |  |   | 96  | 
|                                          
|                                          
|                                          
|                                          
|Contract cancellation and other exit costs |  |           | 200 |              |  |              | (167 | )            |  |           | 33  |  |  |   | (1  | ) |  |   | 32  | 
|                                           |  |           |     |              |  |              |      |              |  |           |     |  |  |   |     |   |  |   |     | 
|                                           |  | $         | 787 |              |  | $            | (235 | )            |  | $         | 552 |  |  | $ | (41 | ) |  | $ | 511 | 
|                                           |  |           |     |              |  |              |      |              |  |           |     |  |  |   |     |   |  |   |     | 

Accrued restructuring costs for employee separations related to
approximately 7,000 employees worldwide affecting the majority of
 business functions, job classes and regions, predominantly
occurring in North America and Europe. Employee separation
benefits include severance, medical and other benefits.

In June 1998, Compaq recorded a restructuring charge of
approximately $1.7 billion to integrate the operations of
Compaq and Digital, consolidate duplicative facilities, improve
service delivery and reduce overhead. Approximately
$1.5 billion was related to the acquisition of Digital and
recorded as a component of purchase accounting and
$286 million related to Compaq and was charged to
operations. Compaq has completed most of the actions contemplated
 under the restructuring plan. Accrued restructuring costs at
March 31, 2000 include amounts for actions that have already
 been taken, but for which expenditures have not yet been made.
Accrued restructuring costs as of March 31, 2000 and amounts
 charged against the provision were as follows:

|                       |  |           |       |              |  |              |        |              |  |           |     |  |  |   |     |   |  |   |     | 
|---------------------- |  | --------- | ----- | ------------ |  | ------------ | ------ | ------------ |  | --------- | --- |  |  | - | --- | - |  | - | --- | 
|                       |  | Beginning |       |              |  | December 31, |        |              |  | March 31,
|(In millions)          |  | Accrual   |       | Expenditures |  | 1999         |        | Expenditures |  | 2000     
|                       |  |           |       |              |  |              |        |              |  |          
|Employee separations   |  | $         | 1,131 |              |  | $            | (962   | )            |  | $         | 169 |  |  | $ | (72 | ) |  | $ | 97  | 
|                      
|                      
|                      
|                      
|Facility closure costs |  |           | 414   |              |  |              | (184   | )            |  |           | 230 |  |  |   | (22 | ) |  |   | 208 | 
|                      
|                      
|                      
|                      
|Relocation             |  |           | 99    |              |  |              | (65    | )            |  |           | 34  |  |  |   | (1  | ) |  |   | 33  | 
|                      
|                      
|                      
|                      
|Other exit costs       |  |           | 100   |              |  |              | (83    | )            |  |           | 17  |  |  |   | (4  | ) |  |   | 13  | 
|                       |  |           |       |              |  |              |        |              |  |           |     |  |  |   |     |   |  |   |     | 
|                       |  | $         | 1,744 |              |  | $            | (1,294 | )            |  | $         | 450 |  |  | $ | (99 | ) |  | $ | 351 | 
|                       |  |           |       |              |  |              |        |              |  |           |     |  |  |   |     |   |  |   |     | 

Compaq expects to substantially complete the initiatives
contemplated in its restructuring plans during the remainder of
2000. Compaq believes that, upon conclusion of its restructuring
initiatives, its cost structure will be significantly reduced.
However, there can be no assurance that such cost reductions can
be sustained or that the estimated costs of such actions will not
 change.

Total regular employee headcount increased from approximately
67,100 at December 31, 1999 to approximately 69,000 at
March 31, 2000. The increase resulted primarily from
employee additions of approximately 2,500 related to the Custom
Edge acquisition. This increase was offset in part by employee
separations of approximately 500 and 1,600 due to the 1998 and
1999 restructuring actions, respectively. As of March 31,
2000, the remaining employee separations under the 1998 and 1999
restructuring plans were approximately 1,000 and 3,000,
respectively. In addition to the above factors, employee
headcount increased as a result of selective hiring of specialist
 skills and capabilities in services and high-end enterprise.



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##### Table of Contents



Other Items

In a Report on Form 8-K filed with the Securities and
Exchange Commission dated May 5, 2000, Compaq announced
organizational changes to streamline its Enterprise Solutions and
 Services Group (ESSG). The heads of the three ESSG
products divisions will report to Compaqs Chief Executive
Officer. In addition, Compaq has combined its services and
solutions divisions with its worldwide sales organization. Compaq
 is currently evaluating the effect, if any, that these changes
might have on segment reporting.

Liquidity and Capital Resources

Compaqs cash and cash equivalents increased to
$3.2 billion at March 31, 2000, from $2.7 billion
at December 31, 1999. The increase was primarily due to cash
 provided from financing activities of $1.1 billion,
partially offset by cash used in operations and investing
activities of $570 million and $41 million,
respectively.

Net cash used in operations was comprised of $1.2 billion
used in working capital and other activities, offset in part by
net income adjusted for non-cash items of $641 million. Net
cash used in working capital and other activities resulted
primarily from an increase in receivables and cash payments for
current liabilities. Accounts receivable were $7.2 billion
and $6.7 billion at March 31, 2000 and
December 31, 1999, respectively. Days sales outstanding for
the quarter increased to 63 days versus 53 days in the
prior quarter. The increase in days sales outstanding was driven
by a higher level of sales near the end of the current quarter,
relative to the fourth quarter of 1999. Inventory levels remained
 relatively unchanged at $2.0 billion at March 31, 2000
 and December 31, 1999. Inventory turns for the first
quarter of 2000 decreased to 14.4 versus 16.1 for the fourth
quarter of 1999. High volume PC inventory turns of 33.6 were
offset by the traditionally lower inventory turns in the high-end
 business and services area.

Net cash used in investing activities resulted from the following
 items. Compaq paid cash of $370 million for the purchase of
 certain assets and liabilities from Inacom. Compaq also used
cash of $252 million for capital expenditures, net of
disposals, and $55 million for other investing activities.
These uses of cash were partially offset by proceeds from
maturities of short-term investments of $636 million.

Future uses of cash for the remainder of 2000 include cash
expenditures for currently planned restructuring activities
estimated to be $600 million; capital expenditures for land,
 buildings and equipment which are estimated to be
$800 million; purchases of equipment to be leased to third
parties of approximately $400 million; and cash payments for
 common stock repurchases and dividends.

Compaq also plans to use available liquidity to develop the
purchased in-process technology related to the Digital
acquisition into commercially viable products. This primarily
consists of 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, diagnostic software, device drives, and testing the
technology for compatibility and interoperability with
commercially viable products. At March 31, 2000, the
estimated costs to be incurred to develop the purchased
in-process technology into commercially viable products totaled
$2.4 billion in the aggregate through the year 2005
($380 million in the remainder of 2000, $540 million in
 2001, $520 million in 2002, $500 million in 2003,
$310 million in 2004 and $130 million in 2005).



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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 has a $1.0 billion revolving credit
facility bearing interest at LIBOR plus 0.625 percent that
expires in October 2000 and a $3.0 billion revolving credit
facility bearing interest at LIBOR plus 0.325 percent that
expires in October 2002. Both of these facilities were unused at
March 31, 2000. Compaq has also established two short-term
commercial paper programs: a $1.5 billion program in the
name of Compaq Computer Corporation, and a $1.0 billion
program in the name of CFS. Both programs are supported by the
$3.0 billion credit facility described above. Outstanding
commercial paper reduces available borrowings under this credit
facility. At March 31, 2000, Compaq had $978 million
and $538 million in commercial paper outstanding under the
Compaq and CFS programs, respectively, with a weighted average
interest rate of 6.1 percent. Additionally, Compaq maintains
 various uncommitted lines of credit, which totaled approximately
 $325 million at March 31, 2000. There were no
outstanding borrowings against these lines at March 31,
2000. Compaq intends to file a $2.0 billion shelf
registration for debt securities, for the purpose of funding
activities of CFS, refinancing of short-term debt, and general
corporate purposes. Compaq intends to initially draw
approximately $200 million to $600 million. Compaq
believes that these sources of credit will 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 intense industry-wide competition. Industry
participants confront aggressive pricing practices, continually
changing customer demand patterns, and rapid technological
developments. The cautionary statements 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.

Delays in changes in delivery models could negatively affect
financial results. Compaq sells directly to end users in all
market sectors, but the largest proportion of direct sales is in
large enterprise accounts. Products in Commercial Personal
Computing are sold primarily through third-party resellers while
products in Consumer are sold principally through retail outlets.
 Compaq has not kept pace with changes in the industrys
sales and distribution model and has faced challenges in
developing and implementing processes for order entry, production
 of individualized units and direct distribution. Compaq has
established a variety of programs designed to achieve these
capabilities by simplifying its product set and pricing model,
re-engineering the channel delivery model and more rapidly
expanding e-commerce capabilities for large, medium and small
businesses and in North America, Compaq acquired certain
operational assets of Inacom to enhance its configuration, order
management, and direct delivery capabilities. Compaqs
future operating results may be negatively impacted if it is
unable to carry out these operational improvements effectively.
In addition, Compaq confronts other risks associated with the
acquisition of direct capacity in North America, including the
transition of manufacturing and distribution to former Inacom
facilities, reliance on resale of the products of other computer
manufacturers, and low profitability associated with acting as a
configurator for other OEMs.

Competitive environment places pressure on revenue, gross
margins and market share. Competition remains intense in the
information technology industry with a large number of
competitors vying for market share, domestically and
internationally. Competition creates an aggressive pricing
environment, which continues to put pressure on revenue, gross
margins and market share. Compaq has experienced this pressure,
particularly in its Commercial Personal Computing and Consumer
businesses and could experience similar pressures in its high-end
 industry-standard server and storage businesses in the future.

Component shortages could curtail production. From time to
 time, supply for key components in Compaqs products lags
behind worldwide demand. In the event that supply of a key
material component is delayed or curtailed, Compaqs ability
 to ship the related product in desired quantities and in a
timely manner could be adversely affected. Industry shortages
currently exist for certain types of display panels,
microprocessors, memory and capacitors. Compaq attempts to
mitigate the risks of component shortages by working closely with
 key suppliers on product plans, coordinated product
introductions, purchases on the spot market, and selected
strategic purchases.



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##### Table of Contents



Unanticipated delays in product schedules could affect product
 demand.The process of developing new, high-technology
products and services is complex and uncertain. Successful
product transitions and deployment of new products requires
accurate predictions of the product development schedule as well
as volumes, product mix, customer demand and configuration.
Compaq may also anticipate demand and perceived market acceptance
 that differs from the products realizable customer demand
and revenue stream. Further, in the face of intense competition
in the market, any delay in a new product rollout could decrease
any advantage Compaq may have to be the first to market. A
failure on the part of Compaq to carry out a product rollout in
the time frame anticipated and in the quantities appropriately
matching current customer demand could directly affect the future
 demand for the product and the profitability of Compaqs
operations.

New form factors introduce uncertainty into the market.
The increasing reliance on the Internet is creating new dynamics
in the computer industry. As businesses and consumers turn to the
 Internet, speed and connectivity may become more critical than
stand-alone power for client devices. Compaq is introducing a new
 generation of Internet devices built around simple form factors,
 customized functions and wireless mobility. Compaqs
products will vie for market share against those of computer
companies as well as consumer electronics and telecommunications
companies. Hardware products, which are Compaqs traditional
 area of strength, may become less important than service
offerings in attracting and retaining customers. In addition, as
new form factors are adopted, sales of traditional personal
computers may decline.

Inability to attract and retain employees could hamper
business operations.In searching for new employees and
retaining its current employees Compaq competes with other
technology companies, including start-up Internet companies that
may be perceived as offering more significant opportunities to
realize wealth. In its integration and restructuring efforts,
Compaq lost a number of sales and service employees in Europe and
 it is currently experiencing high attrition rates among certain
engineering groups. Compaqs failure to attract key
employees to fill these openings or the loss of significant
numbers of additional key employees could make it difficult for
Compaq to achieve its current business plans.

Restructuring activities could impede operations. Compaq
undertook significant restructuring activities in 1999 that will
continue to be carried out in 2000. In addition, certain actions
remain to be completed from its restructuring activities
initiated in 1998. Compaq expects to substantially complete the
initiatives contemplated in its restructuring plans during 2000.
These activities are focused on alignment around three business
groups, each of which will be structured to be competitive within
 its sphere of operations. Compaq is focused on bringing its
operational expenses to appropriate levels for each of its
businesses while simultaneously implementing extensive new
programs. The significant risks associated with these actions
include delays in decision-making, lack of clear lines of
authority during transitions, customer confusion about
Compaqs future products and services, and an adverse impact
 on employee morale and retention. Compaqs high-end
business in particular has been affected by the steps necessary
to achieve appropriate expense levels in the field, particularly
in France and Germany, and the need to implement appropriate
sales and services organization recruitment, training and
incentive plans. Compaq believes that, upon conclusion of its
restructuring initiatives, its cost structure will be
significantly reduced. However, there can be no assurance that
such cost reductions can be sustained, that the estimated costs
of such actions will not change, or that certain targeted areas
require additional headcount or investment to achieve desired
levels of profitability.

Credit risks could increase if financial condition of
resellers erodes.Compaqs primary means of distribution
 is through distributors and resellers. Compaq continually
monitors and manages the credit it extends to distributors and
resellers and attempts to limit credit risks by utilizing risk
transfer arrangements and obtaining security interests. Recently,
 distributors and resellers have been consolidating in response
to changes in the profitability of their businesses. Further, the
 industrys transition from an indirect sales model to a
direct sales model has reduced the need for the number of
distributors or resellers in the market. Compaqs business
could be adversely affected in the event that the financial
condition of its distributors and resellers erodes. Upon the
financial failure of a distributor or reseller, Compaq could
experience disruptions in distribution as well as a loss
associated with the unsecured portion of any outstanding accounts
 receivable.



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##### Table of Contents



Delays in new systems implementation could hamper operational
efficiency. Compaq continues to focus on increasing the
effectiveness and efficiency of its business and information
management processes to increase customer satisfaction, improve
productivity and lower costs. 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. Although
major portions of this transition have been completed,
integrating the systems from the Inacom asset acquisition as well
 as remaining Digital and Tandem systems that are not integrated
complicates this process. This year is critical to this effort
because delays in the transition to new systems could hamper
Compaqs efforts to increase its operational efficiency.
Delays in implementing further improvements could adversely
affect inventory levels, cash and related profitability.

Quarterly sales cycle makes planning and operational
efficiencies difficult. Compaq, like other computer
companies, generally sells more products in the third month of
each quarter than in the first and second months. This sales
pattern places pressure on manufacturing and logistics systems
based on internal forecasts and may adversely affect
Compaqs ability to predict its financial results
accurately. In addition, to rationalize manufacturing
utilization, Compaq may build products early in the quarter in
anticipation of demand late in the quarter. Developments late in
a quarter, such as lower-than-anticipated product demand, a
systems failure, or component pricing movements, can adversely
impact inventory levels, cash and related profitability, in a
manner that is disproportionate to the number of days in the
quarter affected.

Minority investments could adversely affect liquidity and
earnings. Compaq holds minority interests in companies having
 operations or technology in areas within Compaqs strategic
 focus. Some of these investments are in research and
development, start-up or development stage companies or companies
 where operations are not yet sufficient to establish them as
going concerns. As a result, Compaq may be called upon under
contractual or other terms to provide funding for operations of
such companies and may share in the losses of such entities.
Certain investments are in publicly traded companies whose share
prices are highly volatile. While the overall financial impact of
 these investments has been favorable thus far, adverse changes
in market conditions or poor operating results of underlying
investments could result in Compaq incurring losses or an
inability to recover the carrying value of its investments.

Doing business in certain locations creates additional risks. 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 and the volatility of economic conditions in
countries that are dependent on exports from the United States
and European markets. Compaq generally has experienced longer
accounts receivable cycles in emerging markets, in particular
Asia-Pacific and Latin America, when compared to United States
and European markets. Compaq is also subject to any political and
 financial instability in the countries in which it operates,
including inflation, recession, currency devaluation and interest
 rate fluctuations. Compaq continues to monitor its business
operations in these regions and takes various measures to manage
risks in these areas.

Year 2000 Compliance. Compaq is currently not aware
of Year 2000 problems in any of its products, critical
systems or services. However, the success to date of its
Year 2000 efforts cannot guarantee that a Year 2000
problem affecting third parties upon which it relies will not
become apparent in the future.



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##### Table of Contents



Effective tax rate. Compaq anticipates an effective tax
rate of 32% for 2000. Compaqs manufacturing entity in
Singapore is subject to a tax holiday which is not expected to
extend beyond 2001. Compaqs tax rate has historically been
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 United States.
Compaq has ceased utilization of a portion of its Singaporean
manufacturing subsidiarys production capacity during 2000.
The profitability of this facility is expected to decrease
significantly, accompanied by a corresponding decrease in the
impact of the tax holiday on Compaqs effective tax rate. In
 addition, should Compaqs intercompany transfer pricing
with respect to its Singaporean manufacturing subsidiary for
prior years require significant adjustment due to audits or
regulatory changes, Compaqs overall tax rate could
increase.

Currency Fluctuations. Compaqs risks associated with
 currency fluctuations are discussed in Item 3 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 3. | Quantitative and Qualitative Disclosures About Market Risks

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

Compaq uses market valuations and value-at-risk valuation methods
 to assess the market risk of its financial instruments and
derivative portfolios. It uses software by 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 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, interest rate swaps, and foreign exchange contracts
in the value-at-risk calculation. The holding period for these
instruments varies from one day to nine months. The measured
value-at-risk from holding derivative and other financial
instruments, using a 95 percent confidence level and
assuming normal market conditions during the period ended
March 31, 2000 was immaterial.



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##### Table of Contents



The value of the U.S. dollar affects Compaqs financial
 results. Changes in exchange rates may positively or negatively
affect Compaqs revenues, gross margins, operating expenses
and retained earnings as expressed in U.S. dollars. Compaq
engages in hedging programs aimed at limiting in part the impact
of currency fluctuations. Compaq primarily uses forward exchange
contracts to hedge those assets and liabilities that impact the
income statement when remeasured according to accounting
principles generally accepted in the United States. For some
markets, 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 if a significant and
sudden decline occurs in the value of local currencies. Compaq
purchases foreign currency option contracts from time to time as
well as short-term forward exchange contracts to protect against
currency exchange risks associated with the anticipated revenues
of Compaqs international marketing subsidiaries, with the
exception of Latin America and 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, Compaqs revenues or costs are adversely
affected 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.

Changes in interest rates affect interest income earned on
Compaqs cash equivalents and short-term investments, and
interest expense on short-term borrowings. Compaq does not enter
into derivative transactions related to its cash, cash
equivalents or short-term investments. Compaq does periodically
enter into interest rate swap transactions for the purpose of
hedging existing or anticipated liabilities. All interest rate
swaps entered into by Compaq are for the sole purpose of hedging
existing or anticipated interest rate sensitive positions, and
not for speculation.

Compaq is exposed to equity price risks on the marketable portion
 of investments in publicly traded equity securities. These
investments are generally in companies having operations or
technology in areas within Compaqs strategic focus. Compaq
does not attempt to reduce or eliminate its market exposure on
these securities. A 20 percent adverse change in equity
prices would result in an approximate $1.2 billion decrease
in the fair value of Compaqs available for sale securities
as of March 31, 2000. As of May 8, 2000, the fair value
 of Compaqs available for sale investments was reduced to
$3.3 billion, predominately due to lower market values of
publicly traded securities.



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##### Table of Contents






PART II. OTHER INFORMATION




Item 1.  Legal Proceedings

See Note 10 to unaudited interim consolidated financial
statements.




Item 4.  Submission of Matters to a Vote of
Security Holders

There were no matters submitted to a vote of security holders
during the first quarter of 2000. At the annual meeting of
stockholders of Compaq on April 27, 2000, the stockholders
voted on two proposals. The first was a proposal to elect
Benjamin M. Rosen, Lawrence T. Babbio, Jr.,
Michael D. Capellas, Judith L. Craven, Chris A.
Davis, Robert Ted Enloe, III, George H. Heilmeier,
Peter N. Larson, Kenneth L. Lay, Thomas J.
Perkins, Kenneth Roman and Lucille S. Salhany as directors
of Compaq. The following table sets forth the votes in such
election:

|                        |  |           |               |                  |  |  |            | 
|----------------------- |  | --------- | ------------- | ---------------- |  |  | ---------- | 
|                        |  |           |               | Votes Against or
|Director                |  | Votes For |               | Withheld        
|                        |  |           |               |                 
|Benjamin M. Rosen       |  |           | 1,375,271,403 |                  |  |  | 14,773,679 | 
|                       
|                       
|                       
|                       
|Lawrence T. Babbio, Jr. |  |           | 1,377,342,369 |                  |  |  | 12,702,714 | 
|                       
|                       
|                       
|                       
|Michael D. Capellas     |  |           | 1,376,273,566 |                  |  |  | 13,771,517 | 
|                       
|                       
|                       
|                       
|Judith L. Craven        |  |           | 1,375,543,079 |                  |  |  | 14,502,004 | 
|                       
|                       
|                       
|                       
|Chris A. Davis          |  |           | 1,376,089,836 |                  |  |  | 13,955,247 | 
|                       
|                       
|                       
|                       
|Robert Ted Enloe, III   |  |           | 1,375,893,450 |                  |  |  | 14,151,633 | 
|                       
|                       
|                       
|                       
|George H. Heilmeier     |  |           | 1,376,388,760 |                  |  |  | 13,656,322 | 
|                       
|                       
|                       
|                       
|Peter N. Larson         |  |           | 1,376,845,947 |                  |  |  | 13,199,136 | 
|                       
|                       
|                       
|                       
|Kenneth L. Lay          |  |           | 1,376,014,641 |                  |  |  | 14,030,442 | 
|                       
|                       
|                       
|                       
|Thomas J. Perkins       |  |           | 1,375,991,133 |                  |  |  | 14,053,950 | 
|                       
|                       
|                       
|                       
|Kenneth Roman           |  |           | 1,375,820,547 |                  |  |  | 14,224,536 | 
|                       
|                       
|                       
|                       
|Lucille S. Salhany      |  |           | 1,375,912,693 |                  |  |  | 14,132,390 | 

The stockholders also voted on a proposal to reapprove the Compaq
 Computer Corporation Bonus Incentive Plan. The following table
sets forth the votes in such election:

|                 |  |                   |               | 
|---------------- |  | ----------------- | ------------- | 
|                 |  | Number of Shares:
|                
|                
|Voted For        |  |                   | 1,309,085,174 | 
|                
|                
|                
|                
|Voted Against    |  |                   | 68,876,189    | 
|                
|                
|                
|                
|Abstentions      |  |                   | 12,068,208    | 
|                
|                
|                
|                
|Broker Non-Votes |  |                   | 15,511        | 



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##### Table of Contents






Item 6.  Exhibits and Reports on Form 8-K

|    |  |             |    |             |  |                               |  | 
|--- |  | ----------- | -- | ----------- |  | ----------------------------- |  | 
|(a) |  | Exhibit No. |    | Description |  |                              
|    |  |             |    |            
|    |  |             | 27 |             |  | EDGAR financial data schedule |  | 

(b)  Reports on Form 8-K

| |  |       |  |                                                                                                                                                                                                                                                                                                               
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (i)   |  | Report on Form 8-K dated February 24, 2000, containing
        Compaqs news release dated February 24, 2000,
        announcing the appointment of Ernst & Young LLP as
        Compaqs independent accountants for the year ending
        December 31, 2000.                                              
|
| |  | (ii)  |  | Report on Form 8-K/ A dated February 24, 2000,
        containing Compaqs news release dated February 24,
        2000, announcing the appointment of Ernst &
        Young LLP as Compaqs independent accountants for the
        year ending December 31, 2000, with the corrected
        Exhibit 16.1.1.
|
| |  | (iii) |  | Report on Form 8-K dated February 28, 2000, containing
        Compaqs news release dated February 28, 2000,
        announcing the appointment of Jesse J. Greene, Jr., as
        Senior Vice President and Chief Financial Officer of Compaq
        Computer Corporation.                                
|
| |  | (iv)  |  | Report on Form 8-K dated March 30, 2000, announcing
        Compaqs decision not to adopt Financial Accounting
        Standards No. 133 (FAS 133), Accounting
        for Derivative Instruments and Hedging Activitieseffective
        January 1, 2001.                                                 
|
| |  | (v)   |  | Report on Form 8-K dated April 25, 2000, containing
        Compaqs news release dated April 25, 2000, announcing
        its earnings release for the first quarter of 2000.                                                                                                                                
|
| |  | (vi)  |  | Report on Form 8-K dated May 5, 2000, containing
        Compaqs news release dated May 5, 2000, announcing
        organizational changes to streamline its Enterprise Solutions and
         Services Group.                                                                                               

All other items specified by Part II of this report are
inapplicable and accordingly have been omitted.



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##### Table of Contents






SIGNATURES

Pursuant to the requirements 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.



| |                                               
| | ----------------------------------------------
| | COMPAQ COMPUTER CORPORATION                   
|
| | /s/ JESSE J. GREENE, JR.                      
| |                                               
| | Jesse J. Greene, Jr.,                         
| | Senior Vice President and                     
| | Chief Financial Officer (as authorized officer
| | and as principal financial officer)           

May 10, 2000