Features

HP foresees better earnings, but merger debate continues on

By Brian Bergstien The Associated Press
Tuesday February 05, 2002

SAN JOSE — Hewlett-Packard Co. said Monday that first-quarter earnings will beat current Wall Street forecasts because consumer demand for its computers and printers has been better than expected. 

The positive report didn’t stop the bickering over HP’s proposed $23.7 billion acquisition of Compaq Computer Corp., however. Chief opponent Walter Hewlett said the improved outlook is another sign HP could do well on its own without the risky Compaq merger. 

Hewlett, an HP board member and son of one of the company’s late co-founders, also blasted chairwoman Carly Fiorina for telling an investment conference Monday she is garnering enough shareholder support to win the proxy fight over the deal. 

Hewlett said he is hearing quite the opposite in his meetings with investors, and accused Fiorina of lying so as to “mislead the market.” 

HP spokeswoman Rebeca Robboy took issue with that allegation, and said Fiorina was right to relate “growing support from institutional investors.” Analysts also have remarked recently that shareholder perceptions about the deal appear to be changing. 

“We stand behind the belief that if such momentum continues, we should have a favorable outcome,” Robboy said. 

HP had said on Nov. 14 that revenue in the first quarter, which ended Thursday, likely would drop slightly from the fourth-quarter figure of $10.9 billion. Margins and expenses were expected to be essentially flat. 

But the company said Monday that revenue actually will be “up moderately” from the fourth quarter, with “measurable” increases in gross margins. That translates into earnings “substantially” above analysts’ current forecast of 16 cents per share, excluding one-time charges. 

The company did not provide more specific figures. Full results for the quarter are due to be reported Feb. 13. 

“Economic conditions around the world continue to be challenging, but consumer technology spending is clearly showing some strength,” Fiorina said. 

Investors seemed moderately pleased — despite a broad selloff that pushed the Dow Jones Industrial Average more than 2 percent lower Monday, HP shares rose 4 cents to $22.04 on the New York Stock Exchange. 

Merrill Lynch analyst Steven Milunovich raised his HP earnings estimate to 24 cents per share, from 17 cents. But he said he was “somewhat suspicious” of the report because of HP’s desire to win support for the Compaq deal. 

Indeed, HP cited the upgraded outlook as evidence that it is not being distracted by the Compaq integration or the debate over the acquisition. Hewlett and Packard family interests with 18 percent of HP shares vow to vote the deal down and have harshly criticized Fiorina. 

“Our shareowners can be assured that we are on a path toward enhancing, not losing, shareowner value,” Fiorina said at the Goldman Sachs technology conference in Palm Springs. 

Banc of America Securities analyst Joel Wagonfeld raised his first-quarter earnings estimates from 15 cents to 26 cents, though he said the strong consumer demand will be hard to sustain. 

He also said the relatively strong financial reports from HP and Compaq in recent weeks “have improved the credibility of each management team.” 

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On the Net: 

Pro-merger page: http://www.votethehpway.com 

Anti-merger page: http://www.votenohpcompaq.com