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Thu, May 22, 2003 - Page 12 News List

Hewlett-Packard doubles profit

LOSS REDUCTION The key contributing factor to HP's second-quarter success was the purchase of Compaq by the world's second largest computer maker and IBM rival

BLOOMBERG , PALO ALTO, CALIFORNIA

Hewlett-Packard Co, the world's No. 2 computer maker, said second-quarter earnings more than doubled as it cut costs and reduced losses in the server division after buying Compaq Computer Corp. The shares climbed.

Net income rose to US$659 million, or US$0.22 a share, from US$252 million, or US$0.13, a year earlier, when the company didn't own Compaq. Sales in the quarter ended April 30 gained 69 percent to US$18 billion, buoyed by the dollar's drop and the acquisition.

Profit this fiscal year will beat most analysts' estimates, Hewlett-Packard said. Chief executive Carly Fiorina is eliminating jobs and products to wring more cost cuts out of the Compaq purchase than she originally estimated.

The company will save US$3.5 billion in annual expenses after the transaction, Fiorina said on a conference call, reassuring investors.

"It looks like they continue to do a good job," said Pat Becker Jr., who helps invest US$1.5 billion at Becker Capital Management, which owns Hewlett-Packard shares.

"The economy is not giving them any breaks, and with the war and everything else, this could have been a difficult quarter," Becker said.

International Business Machines Corp was the world's biggest computer maker by revenue last year.

Hewlett-Packard got 55 percent of its sales from Europe and Asia in the quarter.

The company generated US$2.56 billion in cash in the quarter from selling hardware and services. Hewlett-Packard had US$647 million in cash flow in the first quarter, missing a company prediction for US$2 billion a quarter.

"The cash flow was very impressive and a huge snapback from what was a disappointing cash flow number in the January quarter," said Bruce Garelick, an analyst at Loomis Sayles & Co, which owns shares of Hewlett-Packard and manages US$60 billion.

The company won't make any large acquisitions in the next 12 months, Fiorina said. Hewlett-Packard may buy small companies to "fill in the gaps" in its product lines, she said.

Hewlett-Packard has cut 16,600 jobs since the Compaq deal closed and still plans to eliminate a total of 17,900 positions by the end of this quarter, Wayman said. The company had 138,600 employees at the end of the quarter and wants to have 137,800 by the end of October, he said.

Hewlett-Packard this month gave pay raises to its employees, the first in two years, Wayman said.

The operating loss narrowed in the division that makes storage gear and server computers to run networks and Web sites. The loss contracted to US$7 million in the second quarter from US$83 million in the first. Sales rose 3.4 percent to US$3.86 billion.

Fiorina again promised the unit will be profitable in the second half of this fiscal year, which ends in October. The group may have some extra costs for new products, she said.

"This is a turnaround story," said Bob Rezaee, who helps manage US$22 billion at the McMorgan & Co, which has more than 7.5 million Hewlett-Packard shares.

"The company will have to continue to demonstrate improvements," he said.

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