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February 16, 1999

HP TURNAROUND STILL NOWHERE IN SIGHT

By CBR Staff Writer

By William Fellows

Hewlett-Packard Co blamed a slump in orders for its mid-range Unix servers and test and measurement equipment for a shaky 1% growth in revenue to $11.93bn in its first quarter. However it said sales of printers and of some PC lines were strong and net income rose 3.3% to $960m. We were not pleased with the weak revenue growth, HP says, adding that the turnaround plan it articulated after its disappointing second quarter fiscal last year has not yet taken hold. Going forward it thinks any expectation it can get sales growing at even 5% are too hard. Operating expenses rose 3% to account for 23.1% of revenue up from 22.7% last time. HP admits its restructuring programs have in part caused this. Revenue from the computer business unit – including printers – increased 3% to $10.2bn. Margins declined slightly; HP expects margins to decline further over time but wouldn’t comment on analysts’ expectations they could reach 32% in the next quarter. Test and measurement revenue declined 11% to $919m from $1.07bn. HP says the V-Class Unix servers fueled strong growth in the high-end of the market but sales of its K- Class mid-range, said to account for some 60% of sales, slumped. The A-Class and R-Class are performing according to expectations, it said, but it does not expect the picture to get any rosier during the current quarter as revenue ships of the new K-Class product, code-named Prelude, won’t begin until May (CI No 3,598). Storage grew strongly. Overall the Unix business made a profit on declining sales, HP said, without breaking out numbers any further. The commercial PC server business, especially its vaunted eight-way system, is also in the doghouse. Sales of home PCs and small servers were ahead; overall PC sales were up between 1% and 5% and margins were strong, it says. While ink jet sales declined in Europe, HP said overall the ink jet business was ahead expect in the one to 10 page per minute monochrome market where its share declined to 80% from 82%. LaserJet sales were strong on the back of its new color products. Europe was the star performer with revenue up 9% at $4.5bn. US revenue declined 2% to $5.1bn, while Asia Pacific, Canada and Latin America declined 6% to $2.3bn.

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