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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: calgal who wrote (170803)	9/2/2002 3:44:07 PM
From: calgal	Respond to of 176387

Posted on Thu, Aug. 29, 2002 Another look at HP's earnings beyond the corporate spin By Scott Herhold Mercury News A favorite dictum among accounting professors goes this way: ``Earnings are an opinion. Cash is a fact.'' With that in mind, it's worth taking another look at Hewlett-Packard's spin on its earnings. Think of it as a search for a gum ball in a bowl of Jell-O. It was no surprise that Chief Executive Carly Fiorina sold the company's third-quarter performance as the best thing since, well, the HP-Compaq merger. She sells everything doggedly. In fact, she had some things to boast about: The company's pro-forma earnings per share came in at 14 cents, which -- lo and behold -- was just what analysts expected. Though revenue came in below expectations -- $16.5 billion instead of $16.8 billion -- HP could legitimately argue that it was meeting the targets it set for cost cutting. And its printer division continued its stellar performance. ``I was looking for a little disappointment. And we got a little disappointment on the revenue,'' said L. Roy Papp, a major investor from Phoenix. ``But the earnings figure was right on, and that was encouraging.'' If the dictum holds, however, earnings are an opinion: In this case, HP's pro-forma numbers excluded $2.4 billion in acquisition charges. Gimme Credit, the independent credit analysis shop, estimates the company's negative cash flow at $600 million. Put this another way: Suppose you come home and explain to your spouse that your savings account holds $600 less than it did last week at the same time. You offer explanations: Maybe the car's water pump broke and you had to replace it. Maybe you're getting better mileage now. But given that you'll probably have to dip into the account again next week, family finances can veer in a dangerous direction. In HP's case, it costs money to lay people off, even if it saves money in the long run. The company pays severance, closes plants, discontinues products. And those costs are expected to increase as HP lays off more people (about 6,000 jobs of the expected 15,000 have been eliminated so far). Fiorina argues that these are expected costs, built into the company's model. And HP still has an enviable financial position. (When it was acquired in the all-stock deal, Texas-based Compaq had much more cash than debt.) But for the declining savings account balance to make sense, there has to be the promise of more money flowing into the account eventually. And that's why the numbers are disappointing, particularly in servers and personal computers, two areas under heavy attack from competitors. On a year-over-year basis for the combined companies, HP's quarterly revenue declined from $18.6 billion to $16.5 billion. That's hardly a ringing endorsement for Fiorina's promise that the combined companies would have the leverage and heft to increase sales to corporations. HP officials argue that they're not economists, that they can't control the lethargic drift of spending on technology. Then again, neither can the people at Dell. And they've increased their quarterly sales over the past year from $7.6 billion to $8.5 billion. The bottom line? HP officials deserve credit for how they're attempting to manage the difficult job of cutting costs. But the difficulty of joining two companies distracts them from the job of selling their products. bayarea.com