UPDATE 3-HP profit up; sees 2002 recovery unlikely
(Adds conference call, updates stock price)
By Peter Henderson
SAN FRANCISCO, May 14 (Reuters) - Computer maker
Hewlett-Packard Co. <HPQ.N> on Tuesday posted a more than
five-fold gain in quarterly profit despite a 9 percent decline
in revenues as cost cutting and strong printer sales made up
for slow technology spending by consumers and corporations.
The company said there were no signs of economic recovery
and that it did not anticipate a meaningful improvement in
information technology spending until 2003.
But the company said its now-closed merger with Compaq
Computer Corp was on track and the combined operations had not
lost ground to competitors.
Palo Alto, California-based HP, reporting on its final
quarter before concluding the biggest merger in technology
history, the Compaq deal, showed a net profit of $252 million,
or 13 cents per diluted share, a leap up from $47 million or 2
cents per share in the quarter a year earlier.
Excluding one-time items, HP posted a pro forma operating
profit of $498 million, or 25 cents per diluted share for the
quarter ended April 30, its fiscal second-quarter, compared
with $336 million, or 17 cents per share in the quarter a year
earlier.
That met both HP's own target, set three months ago, and
Wall Street expectations, although revenue, at $10.6 billion,
compared with $11.7 billion in the year-earlier period, was
lighter than HP had expected when it forecast a modest decline
in revenues from the first quarter's $11.4 billion.
"Everybody's revenue forecast for the company is going to
come down," said Lehman Brothers analyst Dan Niles, although he
added that "They managed to get the cost-cutting going."
HP shares fell in after hours trade to $19.74 after rising
during the day by 2.6 percent, or 52 cents, to $20.50 on the
New York Stock Exchange, but a number of analysts said
management had done well given a tough economy and a nasty
fight led by HP's founding families to stop the merger.
"For the quarter, my bottom line is that it was good enough
to keep confidence in management's ability," said Joseph
Cuenco, a technology analyst at Fremont Investment Advisors in
San Francisco, which has 150,000 shares of HP.
PRINTING PROFIT COW
Revenue fell in all segments of HP's business, from a 1
percent drop to $4.9 billion in imaging and printing, which had
about 46 percent of the quarter's sales, to a 20 percent drop
in computer systems, which fell to $1.9 billion, including some
sales to other HP segments.
That was especially hard hit by sales of servers running
Microsoft Corp. <MSFT.O> Windows operating systems. HP recently
confirmed the general expectation that its Windows servers
would be dropped in favor of Compaq's line.
Printing earnings from operations more than doubled, to
$768 million from $365 million in the year-earlier quarter,
services profit dropped six percent to $163 million, helped by
outsourcing work.
The computing systems loss widened 97 percent to $240
million, embedded and personal systems lost $106 million, 25
percent more than a year earlier, and financing showed an $8
million loss, narrowing from $27 million a year earlier.
Wayman said that HP had not had to drop prices on
all-in-one printer/scanner/faxes in the face of strong demand
but that it had taken a $37 million charge for expected price
cuts to keep share in the consumer PC market, where demand had
slowed toward the end of the quarter.
NO ENCOURAGEMENT YET
"The reality is we have seen no signs of encouragement
yet," Chief Financial Officer Bob Wayman said in a telephone
interview. "On the enterprise side, there is no particular
sign, particularly in the U.S., of any increased spending in
the case of computer technology."
Chief Executive Carly Fiorina added in a statement, that
"While a muted recovery in the second half is still possible,
we are not counting on on meaningful improvement in IT spending
until 2003." 'Muted' meant a 2 percent rise in IT spending,
Fiorina said, who saw the 2003 recovery at 8-10 percent.
But she said that HP's revenue loss was in line or better
than the projection of a 4.9 percent decline related to the
merger, even though price competition in sectors like data
storage was heated and overall technology spending was low.
Shares of HP have climbed about 18 percent since completing
the Compaq deal early this month, but they are still down about
25 percent since plans for the merger were announced on Sept.
3, compared with a 15 percent drop for International Business
Machines Corp. <IBM.N>, which HP aims to unseat as the No. 1
computer maker.
HP did not give any forecast for the merger, which it
expects to produce $2.5 billion of cost savings but to cause a
drop of about 5 percent in the combined revenue of the
companies. Wayman said that HP had not expected a 2002 economic
recovery when it made those forecasts.
Executives plan an analyst meeting on June 4 to give more
detailed projections.
(additional reporting by Caroline Humer in New York)
((Peter Henderson, San Francisco Bureau 415 677-2578
peter.henderson@reuters.com))
REUTERS
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