Byline: Cynthia L. Webb
The lead sentence in the San Jose Mercury News's report says it all: " Carly Fiorina is back in Wall Street's good graces."
For the first time since Hewlett-Packard 's controversial merger with Compaq was finalized in May 2002, the combined company turned in a glowing quarter, reporting that its fourth-quarter revenue climbed 10 percent over the same year-ago quarter and -- perhaps more importantly -- that all of its business units logged a profit.
Fiorina was certainly bragging when she told reporters and analysts: "Our results validate the success of the merger." The Wall Street Journal said the results helped the company make "good on [Fiorina]'s promise to wring growth from the company's 2002 purchase of Compaq." Fiorina, in a statement, said: "This was a great quarter. By any measure, we hit our stride and demonstrated what the merger was all about." * San Jose Mercury News: HP Results Solid in 4th Quarter * The Wall Street Journal: HP Posts 10% Increase In Revenue (Subscription required)
Some Wall Street observers were quick to praise HP's success. "Though HP was widely and harshly criticized when it announced plans to merge with Compaq two years ago," The Washington Post reported, "some analysts see the company's recent performance as vindication for the controversial move. 'A year from now we could look back and say this is when HP turned the corner,' said Martin Reynolds , vice president at research firm Gartner Inc. 'The results they showed today are quite surprising; they're very strong.'" * The Washington Post: HP Results 'Strongest' Since Compaq Merger
But the New York Times noted that "Wall Street seemed to greet the report more as a sign of encouraging progress than cause for celebration. The company reported its results after the close of regular trading. In after-hours trading, Hewlett-Packard shares rose 55 cents, to $22.86, according to Instinet. During regular trading, Hewlett-Packard increased 69 cents, to $22.34 a share." Shares of HP stock closed yesterday at $22.21 -- before the fourth-quarter numbers were released.
HP Adds It Up
Overall, HP said it earned $862 million (28 cents a share) on revenue of $19.85 billion. That compared with $390 million (13 cents) in the year-ago quarter on revenue of $18.05 billion. Analysts on average had expected sales of $19 billion. The company said it expects revenues to hit between $19.1 billion to $19.5 billion in its first quarter of 2004, compared with analysts' expectations of $19 billion.
HP's numbers "modestly surpassed Wall Street's expectations," the New York Times reported, which the newspaper said is significant since the computer maker's third-quarter financials raised "fresh doubts about the wisdom of its purchase of Compaq Computer in May 2002." The Times noted that the company's "personal computer division and its business selling larger data-serving computers both returned to profit, after losing money the previous quarter. And the company's printing business delivered another strong performance, reporting more than $1 billion in operating profit, two-thirds of the corporate total." * The New York Times: Hewlett-Packard Rebounds to Beat Forecasts in Quarter (Registration required)
"Much of the disparity between the growth in revenue and in profit can be traced to HP's personal-computer business, where the company is locked in a bitter price war with Dell Inc. HP's personal-systems group reported revenue of $6 billion, up nearly 20% from $5 billion last year, when the unit posted a loss of $68 million. This time, the PC division posted a slim profit of $21 million," the Wall Street Journal reported. "Still, with the PC unit back in the black and a profit of $106 million in HP's enterprise-systems unit that sells larger computers, Ms. Fiorina fulfilled her promise to deliver profit across HP's product line."
The San Francisco Chronicle said while "the company still faces tough competition from IBM and Dell in the consumer and corporate markets, HP has managed to remain a major player in the tech arena, analysts say." The Washington Post noted HP's "performance, which follows a strong earnings announcement last week by rival computer maker Dell Inc., is another indication that the tech industry has at least partly come out of its slump of recent years." Though, according to the Mercury News, Fiorina wasn't about to declare the tech bust over. The HP chief "said corporate customers are still reluctant to spend more money on information technology, and that overall corporate growth is expected to lag consumer sales growth." * The San Francisco Chronicle: HP Profit Up 121% In Quarter
With the Good Comes Some Bad: Buried in a the reporting about HP's great quarter was some bad news for HP employees. The company "said it would lay off 2,000 more employees by early next year as the company cuts costs in expensive areas like California while hiring more lower-wage workers offshore," The San Jose Mercury News reported.
On Tuesday, HP used the Comdex trade show to unveil "plans to enter the $24 billion copier business with new multifunction printing machines and software for managing them over corporate networks," The San Jose Mercury News reported, noting the move is HP's latest challenge to Xerox and other copier companies. "HP Executive Vice President Vyomesh Joshi said the company was introducing three high-end machines that could serve as laser printers, copiers, scanners and fax machines. In contrast to past multifunction devices, Joshi said HP's machines will be as fast as traditional copiers made by market leaders Canon , Ricoh and Xerox." * The San Jose Mercury News: HP To Enter Copier Business
From Dinosaur to Dynamite
SBC Communications , one of the nation's large "Baby Bell" phone companies, is taking a giant step into the future with its decision to offer Internet-based telephone service for mid-sized businesses.
"Using voice over Internet protocol, or VOIP, technology, the new service will allow customers to consolidate voice mail and e-mail in a single inbox, forward calls to cellphones and elsewhere, call from a personal computer, and conduct conference calls from an Internet browser," the Wall Street Journal reported today. "It will be offered in 18 cities starting Thursday. SBC plans to spread the service to 30 cities, including New York, by year end and to most metropolitan areas in the U.S. by the end of 2004."
The real story is that SBC is opening a new frontier in the local phone companies' efforts to fight back against increasing competition, the Journal noted: "[Changes] in technology and regulation have put more pressure on the Bells' rapidly eroding core business of local telephone service. Millions of customers each year are fleeing land-line phones, junking second lines in favor of wireless phones or broadband connections. Cable companies are offering their own competing telecommunications services, while long-distance phone companies such as AT&T and MCI also offer local phone connections. To offset the loss of local business, the Bells are trying to expand to new markets and territories, even if that means competing more fiercely against their peers."
SBC's decision to dip a toe in the Internet protocol waters also comes after a Minnesota court ruled that VoIP isn't subject to the same complex regulations that govern regular phone service, and that is music to a phone company executive's ears. * The Wall Street Journal: SBC Telecom Plan Is Set to Take On Regional Bells
People will be able to watch newly released films on the Internet -- legally -- as soon as mid-2005, according to Jack Valenti , top lobbyist for the Motion Picture Association of America (MPAA). The Los Angeles Times reported that the film industry is working with high-tech companies like Microsoft and Hewlett-Packard to develop secure systems to put films on the Internet without letting pirates distribute black-market copies.
The L.A. Times quoted an interview Valenti gave the Associated Press: "I really do believe that we will be able to have some -- maybe by this time next year -- we'll be able to have the beginnings of some really sturdy, protective clothing to put about these movies."
Valenti also dropped another hint on the subject that's been keeping the Hollywood and Capitol Hill press scribes on tenterhooks for months now: He will step down as MPAA chief executive in the next few months. It has been reported widely (an adverb that hopelessly understates the case) that he will be replaced by Rep. W.J. "Billy" Tauzin (R-La.), the colorful chairman of the House Energy and Commerce Committee. * The Los Angeles Times: Valenti Predicts Movies Online by 2005