Tempest Technologies Inc., a victim of the softening market for computers protected from electronic eavesdropping, said yesterday its board may decide as early as next week to liquidate the Herndon-based company.

Tempest, whose fortunes have risen and fallen dramatically over the past four years, has been seeking a buyer for more than a year with no success. Tempest has 62 employees and annual revenue of about $8 million.

"The board has directed that a plan of liquidation be prepared for the board's consideration," Tempest said in a prepared statement. "Preliminary analysis indicates that liquidation could produce proceeds to the shareholders in excess of the company's most recent three-month average trading price of approximately 40 cents per share." Tempest has about 8 million shares outstanding, 59 percent of them owned by its former parent company, C3 Inc. of Herndon.

Delaney E. Blaine, Tempest's chairman, did not return telephone calls seeking comment, but Stanley G. Peery, acting president, said Tempest's directors had been unable to find a buyer for the company at the right price. "I think they have explored a lot of these avenues and one of these came down to the option of liquidating the company," he said.

But Peery said he could not say why the board seemed to be leaning toward liquidation. "They must have some reason why they decided to take a company that has $6 million in cash and a backlog of $4 million {in orders} and decided to liquidate it," he said. The company said the board would make its decision within the next seven to 14 days.

Analysts said the decision to sell -- and perhaps liquidate -- Tempest Technologies probably was dictated by C3. Officials of C3, which assembles computer systems and modifies them to deal with harsh environments, could not be reached for comment yesterday. Ulric Weil, a Washington-based technology industry analyst, noted that C3 has been attempting to dispose of its less-profitable operations since it was purchased by Knoll Capital Management two years ago.

Weil also said it might be easier to find a buyer for Tempest now that it appears that the Persian Gulf War might lead to a modest revival of Pentagon interest in Tempest's products. Tempest stock has surged recently, but fell 18 3/4 cents yesterday in over-the-counter trading, to 68 3/4 cents.

Just a few years ago, Tempest was a leading member of a group of local companies offering "Tempestizing" services to the government -- the modification of computer equipment to the Pentagon's Tempest standards for protection against electronic eavesdropping.

Tempest Technologies was spun out of C3 in 1987, and Tempest shares traded as high as $8.50 as the company's revenue and profit mushroomed. In fiscal 1988, the company's revenue was $26.2 million, more than three times its current level.

But the company has fallen on hard times as the market for Tempestized equipment has shrunk. Industry analysts point to a number of factors: The Pentagon decided that fewer computers than expected needed the expensive modifications; advances in technology made the special modifications unnecessary in many cases; some computer makers began offering Tempest protection as a standard feature; and an anticipated market for Tempestized computers for commercial applications never really materialized.

"The rules changed under that industry, and I guess it never really caught on in the commercial world, as some had hoped," said Bob Dornan, an analyst at Federal Sources Inc. in Vienna. "The industry has changed significantly, the margins are no longer there, the problems of having to maintain the technology are substantial."

Weil said, "Tempestization is just no longer the business that everybody thought it was going to be."