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To: Clint E. who wrote (22884)	8/17/1999 9:33:00 PM
From: Clint E.	Respond to of 69123

Tue, 17 Aug 1999, HWP Shares Fall After 3rd-Qtr Profit Misses Some Estimates By Jeff Bliss Hewlett-Packard Falls as Profit Misses Some Estimates (Update5) (Updates with closing stock price.) Palo Alto, California, Aug. 17 (Bloomberg) -- Hewlett- Packard Co. shares fell 5.7 percent after the world's No. 2 computer maker's fiscal third-quarter sales and earnings fell short of some investors' expectations. H-P dropped 6 1/4 to 104. The company yesterday reported profit of 81 cents a share after costs from its spinoff of Agilent Technologies Inc. Unpublished forecasts were as high as 87 cents. Before today's drop, H-P's shares had risen 61 percent this year amid optimism that the 61-year-old computer company was catching up with more nimble rivals in the market for machines used by Internet service providers and online businesses. The earnings showed that H-P is reviving after years of slow growth, though it must do more to satisfy impatient investors. ''The stock is a bit ahead of itself,'' analyst Steve Milunovich at Merrill Lynch & Co. in New York wrote in a report. He rates H-P shares ''accumulate.'' Milunovich said H-P's sales of servers, the machines that control the flow on information on the Internet and other networks, didn't meet his expectations. He was looking for bigger gains against rival Sun Microsystems Inc. ''H-P is having difficulty catching up to Sun's Internet computing lead,'' Milunovich said. Profit Boost Moreover, Hewlett-Packard's third-quarter performance wasn't as good as it initially appeared because the company's profit got a boost from interest income, analysts said. ''Unusual interest income added 3 cents a share,'' Milunovich wrote. Some analysts also are concerned that H-P's fiscal fourth- quarter earnings may not meet the highest expectations. Forecasts from First Call Corp. are for $1 a share, while Bill Milton at Brown Brothers Harriman & Co. said the company's comments to analysts indicated profit would range from 90 cents to $1.03. ''The guidance (from H-P) is modestly below Street expectations,'' said Milton, who rates H-P ''neutral.'' H-P's ability to boost profit also could be hampered by its need to hire people for accounting and other corporate responsibilities when separating the Agilent business. With the spinoff, ''All I see are higher costs and expenses,'' analyst Milton said. The new hires may lead to recurring expenses of as much as 3 cents a share, he said. Spinoff H-P yesterday filed to sell stock in the medical equipment and electronic measurement business in what's expected to be one of the biggest U.S. initial public offerings. The sale is part of H-P's plan to sharpen its focus on computers and printers, where growth has been slowing. Agilent will sell everything from ultrasound imaging equipment to semiconductor-testing devices, making it one of the biggest companies in the test and measurement industry. Costs of the split, however, already are reducing earnings. Without costs associated with the planned spinoff, H-P would have earned 85 cents a share for the third quarter. Net income rose to $853 million for the quarter ended July 31, from $621 million, or 58 cents, a year ago. Sales rose 11 percent to $12.2 billion from $10.98 billion. Bright Spots Still, results at Palo Alto, California-based H-P marked a turnaround from the year-earlier period, when recessions in Asia and slowing sales growth sapped profit. At that time, H-P had disappointed investors for nine of the previous 10 quarters. The most recent period ''was another quarter of consistent results,'' said Art Russell, an Edward Jones analyst, who rates H-P shares ''buy.'' That's an achievement because in the past ''they've been pretty unpredictable,'' he said. Among the bright spots, Asian sales rose 24 percent to $1.7 billion. The PC business also improved, with sales rising more than 20 percent, as the company sold its machines without slashing prices the way manufacturers did a year ago. H-P said it expects overall fiscal fourth-quarter sales to rise 10 percent to 13 percent from a year ago. H-P is the latest technology company to see its shares fall after a generally positive earnings report. Shares of No. 1 computer maker International Business Machines Corp. fell 4.6 percent the day after the company said second-quarter profit from operations rose to $1.69 billion, or 91 cents a share. The profit missed the highest forecasts published on Internet sites by a penny. Investors also were wary about IBM's second half, since the company faces tougher comparisons to the year-earlier periods, when PC sales began to pick up.