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THE DAY AHEAD: H-P delivers revenue growth to back up its revival talk

The new Hewlett-Packard Co. (NYSE: HWP) had its millennium coming out party with better than expected first quarter earnings and strong revenue growth of 14 percent. A few more strong revenue quarters and H-P will convert the remaining six analysts that rate the stock a "hold."

When you can put revenue growth and Hewlett-Packard in the same sentence you know times are changing. H-P reported operating earnings Wednesday of 80 cents a share on sales of $11.7 billion. In the fourth quarter, H-P had sales growth of 10 percent (see PC sector stock chart).

H-P: Reclaiming the lead?

CEO Carly Fiorina was convincing on last night's conference call. She talked about customer wins at the expense of Sun Microsystems (Nasdaq: SUNW), high-profile partnerships with Internet stars such as (Nasdaq: AMZN) and strong PC unit growth as the company fills the consumer void left by IBM's (NYSE: IBM) and Packard Bell NEC's exit from the market.

"We are decidedly upbeat," said Fiorina. "We're winning more deals and the revival is underway."

Fiorina highlighted H-P's recent innovations: insurance to protect companies from e-commerce hackers, a big deal with Ford Motor and partnerships with business-to-business players such as Ariba (Nasdaq: ARBA) and i2 (Nasdaq: ITWO). She also said H-P was partnering with wireless leaders such as Nokia (NYSE: NOK).

It's safe to say Fiorina was engaging in a classic case of high-tech name dropping. She hit every hot buzzword out there these days. And that's OK considering H-P has looked like one of the most unhip tech companies around for years. H-P's commercials push the message "invent" and Fiorina is busy inventing a new image for the company.

The company also said PC unit sales were surging and notebook sales were strong. Good printer demand was boosting sales of high-margin supplies. By geography, H-P reported strong sales with Asia Pacific leading the sales growth.

It all sounds so good.

And then CFO Robert Wayman speaks. Like Fiorina, Wayman was a happy camper. But Wayman did reveal a few numbers that indicate the old H-P isn't totally dead.

Despite the surge in revenue growth profits were down substantially from a year ago.


Operating expenses were above H-P's projections and Wayman said there's "still a lot of work to do" on the company's cost structure. There were a few issues in the quarter. For starters, H-P had higher costs due to the Agilent (NYSE: A) spin-off and stock appreciation rights. H-P also took a margin hit because of higher memory costs and sales of lower margin products such as PCs and low-end printers.

Wayman said Agilent expenses cut about a penny a share from the bottom line with increased memory costs trimming two pennies. Increased advertising and an unfavorable Yen conversion didn't help matters either.

The CFO said the worst is over as far as memory prices and reiterated previous guidance of earnings and revenue growth of 12 percent to 15 percent for 2000. "Since we're ahead of plan, we're hoping to come in at the high end of that range," he said. Earnings growth will remain in the same range as revenue growth, he said.

Some analysts sounded concerned about the expenses and earnings in the first quarter, but keep in mind H-P was navigating year 2000 spending slowdowns and other potential landmines.

The jury may still be out on H-P, but it's swinging toward the company's favor.