Stock Falls as Sales of Hewlett-Packards Servers Fail to Impress Analysts
Aug. 18 (The Sacramento Bee/KRTBN)--On second thought, Wall Street declared
Thursday, Hewlett-Packard Co.'s profits weren't so swell after all.
HP's stock tumbled almost 10 percent, surrendering the gains the shares enjoyed
Wednesday, after several industry analysts said they weren't so enthused with
the 23 percent increase in quarterly profits reported.
One of their complaints focused on a product line assembled at HP's Roseville
facility: the high-octane Unix servers that power Internet sites and in-house
corporate computer networks.
Although HP's server revenue was up 13 percent in the quarter, some analysts
grumbled that the sales growth wasn't up to expectations. They also noted that
sales of HP's most expensive servers actually fell during the quarter.
HP "had definitely built up expectations," said Tim Ghriskey, senior portfolio
manager with Dreyfus Corp. in New York.
Company officials had said on Wednesday that high-end server sales fell because
customers were anticipating the mid-September release of a new high-end server
product, called SuperDome, which will also be assembled in Roseville.
Ghriskey called the explanation plausible, saying, "Whenever I know there's a
new product coming out, I wait, too."
But he said the slump reminded investors that the server business is extremely
competitive, with companies like IBM Corp., Compaq Computer Corp. and Sun
Microsystems Inc. making significant strides.
"You have a lot of players; it's where everyone wants to be," Ghriskey said.
Some 70 percent of HP's Unix servers are assembled at a 700-employee Roseville
factory the company opened last year. HP employs a total of 6, 200 workers in
Roseville.
HP shares fell Thursday to $109, a drop of $11.875, on the New York Stock
Exchange.
The day before, the stock soared more than $9 a share in after-hours trading
following the earnings announcement. HP, hailing what it called "superb
results," said its third quarter profits jumped to $1.05 billion from $853
million. Per-share earnings increased to 97 cents from 71 cents, and HP also
announced a 2-for-1 stock split.
Although those results exceeded Wall Street analysts' expectations of 85 cents a
share, analysts quickly began picking apart the numbers. Besides expressing
concern over the server business, they complained that some of the profit gain
was the result of foreign currency gains, lower tax rates and other factors that
had little to do with the basics of HP's business.
"The numbers weren't as good as they looked," said Jerry Dodson of Parnassus
Equity Income Fund in San Francisco.
Still, he said the company's fortunes look bright.
By Dale Kasler |
