Cooking the books.....
Analysts Give H-P Low Grade
In Math in Figuring PC Gain
By PUI-WING TAM
Staff Reporter of THE WALL STREET JOURNAL
It doesn't take an H-P 12C calculator to figure out that the fiscal-first-quarter earnings improvement touted by Hewlett-Packard Co. for its personal-computing business may not be as impressive as it appears, some analysts and money managers say -- they are just doing some simple math.
Basically, they are adding back in estimates of certain expenses -- such as research-and-development and corporate-governance costs -- that H-P moved out of the profit calculation for the business in the quarter ended Jan. 31, in contrast to earlier quarters.
H-P executives had held aloft the PC unit's profitability -- $33 million, the first in-the-black result in about two years -- to highlight how its contentious, $19 billion acquisition of Compaq Computer Corp. last year had paid off. But, it turns out, the Palo Alto, Calif., printer and computer maker adopted some of Compaq's reporting practices in its latest round of financial results, which meant listing those expenses in a category typically used to cover expenses and revenue that can't be allocated to a particular segment.
The upshot: H-P's PC unit, as well as a few other divisions, looked quite a bit healthier. Exactly how much is unclear, because the company declines to say exactly what operating profit the PC unit would have posted or precisely quantify the effect of the recategorization on the group in the latest period.
Andrew Neff, an analyst at Bear, Stearns & Co., says the PC group's "profitability was clearly aided by the reclassification, and it will raise questions in subsequent quarters when the company claims they've reached another milestone."
Bob Wayman, H-P's chief financial officer, acknowledges that the results of the PC group -- as well as groups such as enterprise systems, services, printers and financial services -- did benefit from the reclassifications. But he says the PC unit would still have been profitable without the changes.
To get a sense of the effect of the changes, consider that, before the recategorizations, H-P's PC business posted a full-year 2002 operating loss of $532 million. But after taking the reclassifications into account, the PC group's fiscal 2002 loss narrowed to $372 million, according to H-P. In other words, the loss shrinks by an average of $40 million a quarter, a pretty hefty sum when compared with the segment's most-recent quarterly profit of $33 million. |
