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HP 4Q will likely fall short
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October 27, 1999: 7:57 p.m. ET
Rising chip prices, Y2k concerns could hurt computer maker more than expected
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NEW YORK (CNNfn) - Hewlett-Packard Co. warned industry analysts it would have a difficult time meeting Wall Street's fourth-quarter earnings expectations because problems at its computer server division were proving worse than expected.
Marlene Somsak, a Hewlett-Packard spokeswoman, said the company warned analysts the supply-chain problems would likely cause "additional risk to earnings," which the company will report next month.
Although the company did not provide any guidance on how analysts should adjust their estimates, several proceeded to adjust their estimates downward anyway.
Daniel Niles of BancBoston Robertson Stephens reduced his estimate to 73 cents from 82 cents and Merrill Lynch lowered its fourth-quarter estimate to 73 cents from 78 cents.
Likewise, Gruntal & Co. analyst Mona Eriba lowered her fourth-quarter estimate to 70 cents from 77 cents.
The news spooked investors as well who, after sending Hewlett-Packard's (HWP) stock down 6-1/4 during normal trading hours, reduced the stock's value an additional 3-3/8 to 67 in after-hours trading.
Hewlett-Packard warned earlier this month its fourth-quarter sales would likely be at the low end of analysts' forecasts because of shipment delays in the wake of the Taiwan earthquake last month.
At the time, Hewlett-Packard Chief Executive Officer Carly Fiorina told analysts she still believed the company had a "decent shot" at meeting the consensus analysts' estimates of 99 cents per share, as compiled by First Call Corp.
Analysts promptly lowered their estimates anyway, but only slightly, to an average of 98 cents per share.
However, analysts said the real problem with the company's bottom line is an industrywide slowdown in product demand attributable to growing Year-2000 concerns. Many large corporations are hesitant to commit to large-scale technology purchases until they are confident that their Y2K-remediation programs are complete.
"Y2k is going to be a very large problem," Niles said. "Hewlett-Packard is at the end of the train announcing this."
"We seem to be getting more and more data along those lines every day," agreed Kurtis King, an analyst with Bank America Securities. "It's not just a coincidence that the one area that's weak [at Hewlett-Packard] is directly related to Y2k concerns."
King said that when he asked company officials whether Y2k concerns were affecting their ability to meet Wall Street estimates, he was told it could be a consideration.
Somsak said the company is no longer confident stronger sales in its personal computer and printer business will be able to offset a growing weakness in its North American server business.
"We had actually hoped our personal computer business and printer business were going to do so well that that strength could offset the weakness in Unix servers," Somsak said.
Somsak said the company's decision to disclose the earnings warning to analysts came during conversations that are typical prior to the "black-out" period that directly proceeds the earnings announcement.
But this type of disclose has drawn a harsh eye from regulators in Washington, including U.S. Securities and Exchange Commission Chairman Arthur Levitt, who recently pushed to end this so-called "preferential disclosure."
Hewlett-Packard is the third large technology company to warn it may not meet earnings expectations in the last two weeks.
Dell Computer warned its third-quarter results would likely be hurt by rising computer memory chip prices last week. One day later, International Business Machines Corp. said its fourth-quarter earnings and fiscal 2000 first quarter earnings would fall well below expectations because of Year-2000 concerns. 
-- from staff and wires
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Hewlett-Packard Co.
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