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HP surpasses 3Q estimates

Wall Street expected Hewlett-Packard Co. (NYSE: HWP) to top Wall Street's published estimates for the third quarter and the technology giant did just that.

In fiscal third quarter results released after market close Monday, Palo Alto, Calif.-based Hewlett-Packard reported net income of $853 million, or 85 cents per share, excluding costs related to the company's pending break up. First Call's analyst survey predicted a per share profit of 80 cents for the quarter ended July 31.

Investors built a lot of good news into the stock already. Shares of HP gained 4 5/16 to 110 5/16 in regular trading Monday prior to the earnings report. Hewlett-Packard's stock price has risen nearly 7 percent since Thursday.

"We executed very well on many fronts," CFO Bob Wayman said during an afternoon conference call. "We feel good about our progress on revenue growth and even better about our profitability."

Third quarter revenues increased to $12.2 billion from $11 billion in the year earlier period, when Hewlett-Packard earned $621 million, or 58 cents per share. The computer and imaging business, which generates the bulk of Hewlett-Packard's revenue, picked up 12 percent to $10.3 billion.

Hewlett-Packard saw especially strong growth in servers and notebook computers. Storage sales dropped as HP continued its previously announced plans to concentrate on high-end systems. HP's consulting business saw weaker demand from previous quarters.

HP executives cited International Data Corp. surveys indicating market share gains for Hewlett-Packard's businesses in commercial PCs and worldwide desktops.

The company also reported strong year-over-year growth in printers. Continued strength in supply sales boosted the inkjet business, although HP also saw its highest growth rates in three years for unit shipments of inkjet printers. HP also introduced two new inkjet modesl during the quarter.

HP's ongoing non-computer businesses, which will be spun off as Agilent Technologies, increased 10 percent year-over-year. Optical network products for the telecommunications market carried test and measurement revenue 6 percent higher. Healthcare solutions business gained 14 percent, largely on the strength of Y2K system upgrades for hospital systems. Chemicals analysis revenue went up 16 percent year-over-year. Ongoing semiconductor revenue gained 14 percent.

Break up expenses totaled about $60 million in the third quarter, HP executives said. The company expects break up costs of about $160 million in the fourth quarter. Wayman noted that although the prospectus filed today with the U.S. Securities and Exchange Commission indicated a $100 million IPO for Agilent, the actual size of the offering hasn't been determined yet.

Hewlett-Packard reduced cost of goods for its overall business to 67 percent of revenue, compared to 68.4 percent a year ago and 67.1 percent in the second quarter. Break up expenses pushed operating expenses up to 24.9 percent of revenue, compared to 24.6 percent a year ago and 24 percent in the second quarter.>