October 4, 1999 2:45 PM
Another Bad Day for Hewlett-Packard
By Monica Rivituso
WHILE MOST of the market recovered strongly today from last week's anemia, Hewlett-Packard (HWP) could still use a transfusion. Despite what amounted to glowing comments from Merrill Lynch analyst Steven Milunovich about the company and its new CEO, H-P shares dropped 3.2% by 2:00 p.m. ET. The stock is now down 26% since its last peak on Sept. 9.
The Street clearly chose to focus on the one negative in Milunovich's report. He said this morning that the company's fourth-quarter revenue slowdown may be slightly worse than expected.
On Friday, the stock got hammered after new CEO Carly Fiornia told analysts in a conference call that lackluster Unix-server sales and possible component disruptions from the recent Taiwan earthquake would place a drag on revenue. The company said revenue would likely come in at the lower end of its 10%-to-13% growth forecast. But Milunovich said that after meeting with Fiorina personally later in the day, he learned that growth will more likely come in between 7% to 10%.
That said, Milunovich proceeded to heap praise on Fiorina. "She's the kind of executive I would bet on," he said. After the meeting, Milunovich said he is now projecting 10% revenue growth for the quarter -- betting on the high end of the lowered range -- and he upped his long-term rating to Buy from Accumulate. "We are confident that [Fiorina] will take the necessary steps to return HP to a consistent growth path," he said.
Milunovich said in a conference call today that he expects fourth-quarter PC sales to grow 10% to 15% (in dollars) and 35% to 40% in terms of units. Printer sales, he said, should grow in the midteens range. That's all good, but Unix-server sales should only increase 3% to 5% for the quarter. U.S. sales will likely be flat to down, but Asia and Japan should help offset this weakness with double-digit sales, Milunovich said. While a restructuring of the Unix sales force should help matters, a change like that could take three to six months to show results.
Still, Milunovich was impressed with Fiorina's direction so far. She's outlined five goals that she wants to accomplish within 90 days, he said, noting that the CEO has indicated she wants to make choices about where H-P can grow, realign the company in those directions, develop metrics around which H-P can perform, improve cost structure and bolster the brand.
Milunovich said he expects to hear more about H-P's e-commerce strategy soon, and he wouldn't be surprised if the company branched into information appliances, an area HP has pretty much avoided to date. And while Fiorina is reportedly happy with the management at H-P, Milunovich said she wants to bring in new people, noting the company has to be more accepting of new blood. "In summary, it was a terrific meeting," Milunovich said. But while he sees H-P returning to 15% revenue growth over time, he said it's still too early to see that in the stock, "which is why we're maintaining an Accumulate intermediate-term rating."
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