Hewlett-Packard Co’s making a habit of missing earnings estimates, a fact that brokerage Merrill Lynch & Co interprets as it losing its teflon image. Surprisingly, given the addition of the new V-series servers to its product line, order growth for HP’s Unix servers slowed from the mid-20s to 15%. Orders slowed early in the quarter as the company focused on reducing backlog, Merrill says. The V class did quite well and has performance leadership. The K and D class servers declined due to pricing pressure and are beginning to see competition from eight-way Intel based servers at the low end. Overall growth was 12% compared with 13% in first quarter. Operating expenses grew by 18% year over year even though, according to the brokerage, CEO Lew Platt read managers the riot act. Printer sales were one of the high points of the quarter while PC orders rose by 21% in the US and 7% overseas for a 13% combined rate despite over 60% unit growth. That, says the brokerage, means the price per unit was down by around 30% and PC gross margin was 7 points below plan. It expects HP’s support of both NT and Unix to pay dividends – but not anytime soon. Merrill thinks consumer business will be HP’s key technology driver, expecting HP will get about half its revenue from consumers in the year 2000. Merrill darkly observes that following a couple years where HP could do no wrong, the company can’t get it right now (much like Motorola Inc). The consistent shortfalls in earnings suggest (1) the market place is more competitive – HP gets either the revenue or expense growth it wants but not both, and (2) the company is not as well managed. CEO Lew Platt recently told managers to spend more time with customers and less on internal meetings.
