SAN JOSE — First-quarter profits at Hewlett-Packard Co. more than tripled on strong computer and printer sales to consumers, beating analysts’ recently raised forecasts Wednesday. Even so, executives said HP still needs to buy Compaq Computer Corp. to solve long-term problems.
HP is fighting hard to rally support for the $22.6 billion Compaq deal against intense opposition from dissident director Walter Hewlett, who said the strong earnings report proved that HP would be fine without taking on Compaq.
Chairwoman and chief executive Carly Fiorina carefully used the earnings report to tout HP’s execution in a tough atmosphere and to lament the company’s holes — notably in business PCs, networked data-storage systems and low-end servers.
“These results demonstrate we know our business — better than anyone else,” she said. “The simple fact is, HP has a lot going for it, but there are also significant areas where a lot more is needed. And with Compaq, we have a detailed plan, not just platitudes, to address them.”
In the three-month period ending Jan. 31, HP reported net income of $484 million, or 25 cents per share, compared to $141 million, or 7 cents per share, in the year-ago quarter.
Revenue dropped 8 percent to $11.4 billion.
Excluding acquisition-related charges, HP said it earned $564 million, or 29 cents per share, down from $812 million, or 41 cents per share, a year ago.
Analysts were expecting earnings excluding charges of 25 cents per share, according to Thomson Financial/First Call. The estimate had been 16 cents until last week, when HP said consumer demand for printers and computers had been surprisingly strong.
Indeed, the company’s printers, digital cameras and consumer PCs were among HP’s best performers in the quarter, which included the holiday shopping season. Margins and revenues in high-tech services also rose, but servers and data storage continued to slump.
HP shares rose 21 cents, or 1 percent, to close at $20.98 on the New York Stock Exchange in advance of the earnings report, and were up to $21.05 in the extended session. Compaq gained 28 cents, 2.5 percent, to close at $11.40, and hit $11.65 in after-hours trading.
HP said its outlook for the rest of the year remains cloudy because of unpredictable market conditions and weak technology spending by businesses. Second-quarter revenue is expected to be down modestly from the first quarter, with margins and expenses about flat.
Even the impending earnings report didn’t quiet the infighting over the Compaq acquisition Wednesday, as six HP directors accused Walter Hewlett of going too far in his criticism of Fiorina.
The directors sent Hewlett a letter complaining that he has mischaracterized the amount of time HP spent formulating its long-term strategy before the Palo Alto-based company decided to buy Houston-based Compaq. It also said he has suggested falsely that the board has just rubber-stamped Fiorina’s decisions.
“You have insulted our personal commitment and fiduciary responsibility which each of us take very seriously,” the letter said.
Hewlett, eldest son of an HP co-founder, threw some punches too. He ran a full-page newspaper ad that said complex technology mergers never work out and that HP is overpaying for Compaq.
He also called for HP to adopt a more measured approach, with smaller acquisitions, key investments in printing and a goal of “profitability, not scale in PCs.”
“We believe that trying to out-Dell Dell, while at the same time trying to out-IBM IBM, is a strategy that will leave HP doomed to be a leader in nothing,” Hewlett said in a statement. “No company can successfully be all things to all customers.”
On the Net:
Pro-merger site: http://www.votethehpway.com
Anti-merger site: http://www.votenohpcompaq.com