Compaq's profits fell by over 80 per cent in its second quarter, and the company says that the next quarter could be even worse.
It warned yesterday that sales for the three months to September would be less than for the three months to the end of June, and around £699bn ($1bn) less than analysts had expected.
The world's second largest computer maker said that, although its US revenues had stabilised, it expected weak international sales over the next three months and revenues of £5.6bn to £5.9bn ($8bn to $8.4bn) for the third quarter.
Compaq is locked in a price war in a declining market with rival Dell, which has gained market share at its expense.
The estimate represents a decline in revenues of £5.9bn ($8.5bn) for the three months to the end of June, reported by Compaq on Wednesday. The company said that, excluding certain charges, it made a profit of £47m ($67m) for the three months to the end of June.
Including restructuring charges, the firm made a loss of £195m ($279m). For the same period last year, the firm had revenues of £7.1bn ($10.1bn) and profits of £271m ($388m).
Chief executive Michael Capellas said: "We've seen some stabilisation in the US but the market has weakened in Europe and other geographies. In the short term the market remains volatile and thus difficult to predict."
Analysts said that Compaq would continue to cut costs to maintain a profit. The firm has already made 5100 of 8500 planned job cuts and more could follow. Compaq employed 68,200 staff at the end of June.
Joseph Beaulieu, an analyst at Morningstar.com, said: "We really don't know exactly where the demand for hardware is going to bottom out.
"[Compaq's] management gave a very wide range of revenue guidance but a pretty tight [profits] guidance. To me that says management is going to manage the bottom line through costs cuts and is going to attempt to work with whatever revenue numbers they can pull in."
Beaulieu said that he thought the situation may get worse. "I'm still concerned about the international picture. Europe and Asia seem to still be deteriorating. That is a big concern," he warned.
He added that Compaq seemed to be relying on the 25 October launch of Windows XP to boost sales towards the end of the year. But the launch is by no means certain to be allowed to go ahead by US authorities.
Compaq last month began a 180-day plan to change the company's focus to concentrate more on servers and services.
Despite overall sales falling by £1.1bn ($1.6bn) year on year, revenues at the firm's service division increased slightly to £1.3bn ($1.9bn), from £1.2bn ($1.8bn).
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