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Technology Stocks : Compaq

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From: Lynn	5/12/2008 8:56:08 AM
	of 97611

Hewlett-Packard Co (HPQ) 2FQ08 Preview: Expecting Another Clean Beat; Reiterate Buy (C) 12 May 2008 ? 8 pages ? Quick Call — We expect another clean beat when HPQ reports 2FQ08 results on Thursday. We are very comfortable with our Street-high revenue and EPS estimates of $27.2B and $0.88 and even see potential for several hundred million in additional revenue and $0.02-0.03 in additional EPS. ? Revenue Upside Driven by PCs and FX — Upside to mgmt’s sub-seasonal revenue guidance of $27.7-$27.9B and consensus of $27.9B was driven by solid performance across all divisions, especially PCs where high-teens unit growth outpaced guidance by 3-4%. FX provided ~2.5 pts of qoq revenue growth. Printer unit growth should rebound several percentage pts from last quarter’s 1%. We see potential for up to $1B of revenue upside vs. guidance. ? Normal Sequential Rise in Gross Margin — We expect a normal seasonal 60- 90bp qoq rise in gross margin. Loss-generating inkjet hardware shipments declined in line with normal seasonality (contrary to guidance) and component pricing, especially DRAM, was generally favorable throughout the quarter. ? Guidance In-Line, but Conservative — Given weakening economic conditions in Europe and a recent rebound in the dollar, we would not be surprised by in-line July quarter revenue and EPS guidance (versus consensus). In our view, this guidance leaves room for upside again in 3FQ08. ? Reiterate Buy — We reiterate a Buy (1M) and $64 target. We expect a modest bounce on the print, but see the shares as range-bound pending visibility into the trajectory of demand, components and the dollar.

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