HP sees $200 million in costs from split

The company also expects its operating margin to slip slightly in the second half of 1999.

However, HP's annual meeting with Wall Street analysts was upbeat as most people who follow the company said they believe it has clawed its way back up from its last year's dismal showing to capture some momentum.

"There's a tangible upbeat feeling at the company," HP chief executive Lewis Platt told analysts. Platt said the computer company was re-imagining itself in the age of the Internet and plans to be a leader in Internet-related services.

Despite the shift in tempo, the company was downgraded yesterday to a "hold" from "buy" by Banc of America Securities analyst Kurt King on concerns of how Y2K worries may slow corporate capital expenditure on computer products.

"I guess it's still unknowable," Platt said today in response to the downgrade. "We haven't seen any impact yet. With every month that passes without us seeing an effect, it seems the overall impact will be less than we anticipated a year ago."

HP executives also noted that the company expects double-digit revenue growth in the second half of the year, but it did not specify a figure. The company also said its operating profit margin will dip to 9 to 10 percent rather than its earlier 10 to 11 percent forecast.

Surrounded by banners touting HP's e-services, company executives told analysts at the briefing that the company plans to be a leader in what it calls the "second chapter of the Internet."

In the first chapter, of course, HP got buried by IBM and Sun Microsystems. Just last month, IBM reported it had pulled in $20 billion, or about a quarter of its annual revenue, from its Internet products and services. Meanwhile Sun held on to its strong momentum in building the infrastructure of the Internet.

Still, many analysts at the meeting said they believed that the e-services HP plans to offer will differentiate the company enough from the its competitors. The company plans to provide e-services which are basically Internet-based applications that perform tasks and transactions, which can communicate with one another, and trigger other inter-related services. These services will be accessible using a personal computer, a PDA, cell phone, and even over a television, HP said.

"I don't think it's too late to catch up," said Dan Niles, an analyst at BancBoston Robertson Stephens. "It's a huge market and its growing rapidly and I think HP is very well positioned to take advantage of that."

Although the company did not introduce any new products or services today, executives outlined how e-services are likely to change the face of the Net. HP also assured analysts that the strategy is long term and will not fade after the imminent retirement of its chief executive.

"We are putting a lot of energy and a lot of dollars behind [e-services]," said Platt. "I would say [e-services] is now part of our DNA.

"You will find that our computing and imaging businesses are now organized to deliver on this vision," added Platt.

While Platt hopes to spend time fishing in Montana after his retirement, he also said he may continue at HP as a non-executive chairman.

Asked how a new chief executive could put a personal stamp on the company given its newly defined strategy is already in place, Platt said that the new CEO has an opportunity to build on the company's present momentum.

"If I could wish something for the new chief executive, it would be that we have the kind of business conditions that we have now, rather than where we were a year ago," Platt said.