Hewlett-Packard, battling to complete a proposed megamerger with Compaq Computer, reported today (Wednesday) that fourth-quarter sales slipped 18 percent from the previous year but that it surpassed analysts' earnings estimates for the quarter. Sales for the quarter were $10.9bn, down from $13.3bn a year ago. But that was an improvement compared with the third fiscal quarter's $10.3bn. The company reported a net profit of $97m, or 5 cents per share, including a $282m restructuring charge and other items, compared with a profit of $922m, or 45 cents per share, in the year-ago quarter. Excluding the charges, HP recorded a profit of 19 cents per share. According to First Call's consensus estimates, analysts were expecting HP to report earnings of 8 cents a share on revenue of $9.87bn. Estimates had been as high as 17 cents a share earlier in the quarter, but analysts have been trimming them since. The news gave HP an early lift on Wall Street. Shortly after the market opening, shares were up $2.08, or about 10 percent, to $22.31. Market conditions "continue to be difficult," HP said in a statement, adding that it is "not counting on an economic recovery in 2002." In the first quarter, revenue is expected to drop slightly from the fourth quarter "due to normal seasonal effects," while gross margins are expected to be flat, "reflecting an intensely competitive environment," the company said. Expenses are expected to stay level. On Tuesday, HP moved up the date of its earnings release twice, hoping to secure the limelight and not be overshadowed by Dell Computer, which will report its quarterly results on Thursday. If anything, HP has been suffering from a bit too much press lately. A fight has erupted over the company's bid to merge with Compaq, and representatives from both the Hewlett and Packard families have come out against the deal. According to some analysts, the David and Lucile Packard Foundation, owner of almost 12 percent of HP shares, could make or break the merger. Chair and chief executive Carly Fiorina said in the earnings release that "we are convinced that the Compaq transition is a unique opportunity to move HP into the future and benefit our shareholders, customers and employees." Compaq offers "breadth and depth"
She took an even more direct line during a conference call with analysts, spelling out a list of HP's challenges and explaining how the merger would help solve each of them. "Fundamentally, it's clear that we need to do more to ensure that our computing business is truly poised for leadership and growth. With Compaq we gain...the breadth and depth (to do that)," she said. "Change can be unsettling...but preserving the status quo and takings small steps to improve our competitive business will not serve anyone's interest." There had been some concern that the brouhaha over the merger would put off customers. Fiorina said HP did see improvement in the storage and PC segments, although the overall computing systems segment "remains weak." She said later that the quarter was "characterised by a strong August and a strong October" and that September revenue was hurt by the terrorist attacks of 11 September, which "really caused a pause in purchasing activity across the board for a couple of weeks." Computing systems revenue, including workstations, desktops, notebooks servers and storage, dropped 1 percent from the third quarter and 31 percent from a year ago. Revenue at the printing and imaging segment was off year over year, but up 16 percent from the third quarter. HP's consulting business saw revenue rise 2 percent from the third quarter, and 5 percent from the year-ago quarter. The company managed to turn a profit in its home PC business in North America and Latin America, chief financial officer Robert Wayman said. Operating margins for the computing division dropped to a negative 4.7 percent, compared to a negative 3.8 percent in the third quarter and a positive 4 percent a year ago. HP attributed the decline to a highly competitive market and weakening demand. Fiorina cautioned that she doesn't expect to return to an 8 percent to 10 percent level "until the IT environment normalis(es) and the economy gets back to normal levels." HP did manage to trim operating expenses 4 percent from the third quarter, and 11 percent from a year ago, but margins at 25.7 percent were essentially flat from a year ago. Some of those savings came from job reductions; HP let go approximately 4,000 people in the fourth quarter. The company's plans call for a total reduction of 6,000 jobs, and Wayman said most of the remainder of the cuts would come during the first half of 2002. See techTrader for the latest financial news in the high-tech sector. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the techTrader forum Let the editors know what you think in the Mailroom. And read other letters.