HP posts 4Q gains

November 17, 1999: 7:35 p.m. ET

Strong sales of PCs, printers offset sluggishness in servers
By Richard Richtmyer

NEW YORK (CNNfn) - Hewlett-Packard Co. posted fiscal fourth-quarter financial results Wednesday that were slightly ahead of Wall Street's expectations, and the company's new chief executive said she is aiming for double-digit sales and profit growth in fiscal 2000.
     Before one-time charges for the spinoff of Agilent Technologies, HP reported earnings of 75 cents per share, up from 72 cents per share a year ago. Including the charges, HP earned $760 million, or 73 cents per share, during the quarter ended Oct. 31. That's up 6.5 percent from $710 million, or 68 cents per share a year ago.
     Agilent is set to go public on Thursday at $30 per share.
     HP, the world's second largest manufacturer of computers and other electronic devices such as printers and scanners, said fourth-quarter revenue rose 10 percent to $11.4 billion.
     "We executed solidly despite this quarter's challenges," Carly Fiorina, HP's newly minted president and chief executive, told investors and analysts during a conference call Wednesday evening.
     Shares of HP, added 4-7/8 and closed at 81 on the New York Stock Exchange Wednesday.
     Analysts polled by First Call had expected HP (HWP) to post earnings of 73 cents per share. That estimate, however, was lowered from 99 cents per share last month after the company warned that rising chip prices and Y2K concerns could cut into the profits of its North American server business.
     Fiorina said sales of servers were mixed during the quarter, with those that run Unix operating systems posting stronger growth than those designed to run Microsoft's Windows NT operating system, which came in flat.
     She also noted that customers' uncertainty about the Y2K computer glitch - which could render some systems unable to deal with the date change from 1999 to 2000 because of programming shortcuts that recorded the year with only two digits - could still have an impact on the server business.
     "There are uncertainties with Y2K that will play out during the first quarter," she said.
     Even so, Fiorina said that the company is aiming for top- and bottom-line growth in the range of 12 to 15 percent in fiscal 2000, although she acknowledged that the company has some "long-standing business issues" it needs to address.
     "We don't expect an overnight fix, but we're comfortable we can make substantial progress this year," she said.
     And some analysts who track HP agree. While the company may be struggling to shore up its server business, some of its other product lines are poised to do very well in 2000, they said.
     "People talk about HP being a broken company, but they're not a broken company," said John Jones, an analyst with Salomon Smith Barney in San Francisco. "Half of their business is printers and, they're growing at as much as 16 percent."
     Jones said he had expected HP to post an eight percent increase in sales during the fourth quarter and is maintaining his 13 percent growth forecast for fiscal 2000.
     Strong end demand in the PC and printer businesses should help HP continue its growth in those areas throughout 2000, which could offset quarter-to-quarter sluggishness elsewhere, said analyst Kurt King of Bank of America Securities.
     "The Unix server business is more of a wild card," King said. "They're either going to have to gain some market share or accelerate their efforts on the services and software side. But the markets they're going after certainly support that kind of growth."
     Moving ahead, Fiorina said HP will sharpen its focus on the Internet's role in its business, and expects later this month to announce some "exciting deals" that the company has been hammering out with Internet service providers.
     "We are driving hard at the ISP space, and I am pretty happy with the progress we're making there," she said.
     For all of fiscal 1999, HP said its earnings increased 16 percent to $3.1 billion, or $2.97 per share, up from $2.7 billion, or $2.52 per share last year.
     Revenue for the year increased 7 percent to $42.4 billion, the company said.

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