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HP printer sales expected to buoy earnings

By Stephen Shankland, CNET News.com, CNET on February 17, 2000

Summary

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Modest recovery of Hewlett-Packard's troubled Unix server sales, combined with its strong printer business, is expected to carry the company to a net income of 78 cents per share when it reports earnings today.

"We anticipate an upbeat report," said J.P. Morgan analyst Daniel Kunstler in a report yesterday, calling HP's business printers and printer supplies sales "superb."

Merrill Lynch's Steve Milunovich concurred: "Strong printer results, which represent 60 percent of net income, protect the bottom line," he wrote yesterday.

Analysts surveyed by First Call expect HP to report a net income of 78 cents per share when the Palo Alto, Calif., computing company discloses results for its first quarter of fiscal 2000. Milunovich expects revenue to grow 11 percent compared to the same quarter the year before.

Investors have been optimistic with HP, sending its stock to all-time highs in the last two weeks. In midday trading today, HP stock was up $4.25, or 3 percent, to $129.

HP warned analysts in October of flagging Unix server sales and slower than expected revenue growth during a time when competitor Sun Microsystems is more concerned about its ability to keep up with demand. The news sent HP stock down, but HP rejiggered its sales methods and rebounded.

The weak Unix business is "HP's single largest point of failure, largely self-inflicted and the result of the company pushing the pendulum too far in the direction of (Microsoft Windows) NT," Kunstler said. Like IBM and Compaq, HP sells servers that use the Unix operating system as well as servers that use Windows NT, but Sun only sells Unix machines.

Analysts expect modest improvement in sales of Unix servers, typically higher-end and more profitable machines than those based on Intel chips.

Milunovich expects Unix server sales to "rebound modestly," with revenues increasing 5 percent from the quarter the year before. He also projected that demand for HP's mid-range N-class Unix servers and its low-end L-Class servers will improve.

"The new test is to demonstrate marketing traction against Sun, beyond leveraging the occasional service mishap on Sun's part," Kunstler said, referring to the troubles that afflicted online auction house eBay, which uses Sun servers.

HP also had strong PC sales during the Christmas season, Kunstler said.

"All told, HP is in better shape than it has been for a long time, much owing to Carly Fiorina's leadership and willingness to be much more vocal and decisive," Kunstler concluded.

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