Dismal Earnings Expected for Computer Industry : Technology: The two largest firms, IBM and DEC, will probably post large losses.

The computer industry suffered dismal third-quarter earnings with the two giants--International Business Machines Corp. and Digital Equipment Corp.--taking the hardest hit.

Industry analysts said the anemic economy, combined with slow growth or recession in Japan and Europe, has hurt computer makers, which are due to report earnings this week.

“It was awful, pure and simple,” said Joseph Payne, an Alex. Brown & Sons analyst. “Beyond that, no one expects much. DEC is going to have a big loss, and IBM, they have shipped maybe half of what they expected to ship.”

Computer makers have been stuck in a long and deep slump, suffering from a gradual change among customers away from expensive mainframes to cheaper desktop machines.

The dismal state of the industry has already shaken the two biggest companies, IBM and DEC, to their roots. IBM said recently that 40,000 employees were leaving the company this year--double what it expected to shed at the start of 1992.

“This is the third consecutive year for low single-digit growth, including software and services. I feel like I am following the auto industry,” said David Wu of S.G. Warburg.

Digital, shaken by losses and also forced to lay off workers, replaced founder Kenneth Olsen with Chief Executive Robert Palmer two weeks ago.

As the two giants struggle to reshape their business and compete, more nimble companies have been grabbing bigger chunks of the market.

Compaq Computer Corp. of Houston, which has gained momentum from products introduced earlier this year, is finally starting to show results. Last week, Compaq said it would report record revenue and shipments for the third quarter.

Upstart Dell Computer Inc., the Austin, Tex.-based PC maker that sells its products by mail, is also expected to report healthy earnings for the quarter.

Software giant Microsoft Corp. is rolling ahead with profit gains of 40%--unheard of in much of the computer industry, where profits have been single-digit or nonexistent.

Digital is expected to report a first-quarter loss ranging from $100 million to $200 million, mostly because of declining demand for its computers. The company, based in Maynard, Mass., will report results Wednesday.

Analysts said customers are now waiting for Digital’s new “open” workstations, based on its widely touted Alpha chip.

“We have to get past this September quarter and hopefully this will be as expected in the way of a loss and then hopefully they will be on the way to some earnings momentum,” said Jay Stevens, a Dean Witter analyst.

“With IBM, the question is one of negative earnings momentum,” he said.

IBM is expected Thursday to report a net loss for the quarter, which will include charges for its 40,000 employees leaving the company and for closing down old factories.

The charges include $2.1 billion for capacity cuts, $1.1 billion for staff cuts and an accounting gain of $1.9 billion. IBM will take another $1-billion staff charge in the fourth quarter.

While the company takes the hit on financial charges, its underlying business is less than rosy. Mainframe sales--the bread and butter of the world’s biggest computer company--have been disappointing, analysts said.