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HP plays up confidence

CEO Carly Fiorina says Hewlett-Packard can meet the year's consensus projections for earnings because of its ability to cut costs and take business from rivals.

Hewlett-Packard is confident it can meet consensus projections for earnings for the rest of the year, because of its ability to cut costs and take business from rivals, CEO Carly Fiorina said Tuesday.

"We?re comfortable with these estimates," Fiorina said at a meeting with financial analysts in New York.

The consensus among analysts is that HP will deliver revenue of $17.5 billion and a profit of 26 cents per share for its current fiscal quarter that ends in July, according to First Call. During its fourth fiscal quarter, analysts expect HP to post revenue of $19.1 billion and a profit of 36 cents per share.

Fiorina's comments reiterate a statement of confidence that HP made last month.

The computer giant, which merged with Compaq Computer a little more than a year ago, says its business is gaining strength because of cost savings that exceeded expectations and large deals, including the sale of a Superdome server to the Chinese government, and a $3 billion, 10-year outsourcing agreement with Procter & Gamble.

In December, HP projected the ability to save $3 billion in costs in the current fiscal year. It has since found that it can save about $3.5 billion in costs, Fiorina said. Meanwhile, HP's Personal Systems Group, which builds PCs, is profitable, while its Enterprise Systems Group, responsible for hardware such as servers, is on track to reach profitability in the second half of the year. HP also signed up 55 new customers for information technology services in the first quarter, the company said.

Fiorina said HP's cost cutting and tightening of relationships with customers means the company can meet financial projections, even without an economic turnaround. HP expects to cut another $1 billion from its supply chain, for example, by improving relationships with component suppliers, using contract manufacturers and reducing the number of facilities, such as call centers, that it operates.

"We would love the economy to pick up. We'd love IT spending to pick up. But in the meantime, we're going to focus on what we can control. We're going to focus on growth against our competitors. We will continue to make ongoing improvements in our cost structure and in productivity. As a result of that, you can expect earnings improvements throughout 2003, 2004 and beyond," she said.

The way HP sees it, Fiorina added, its biggest customers are spending less than 20 percent of their IT budgets on HP. HP doesn't need those customers to spend more on IT. Instead, it needs to convince them to spend more of their IT budgets on HP, she said.

Work to do
Though the company is comfortable with earnings estimates for the short term, HP admits that it has work to do in the long term, both in continuing to cut costs and in fending off the advances of Dell Computer and IBM. Dell and IBM are also working toward bigger portions of large companies' IT budgets--making for a battle for share of wallet.

Still, HP admits that it won't be easy to gain market share in any area of the market, whether it's desktops or services.

Dell has an advantage in the U.S. business market, where it sells more desktops than HP, Fiorina acknowledged. But elsewhere in the world and also in notebooks, Fiorina argued that HP is the top dog.

"This is now a two-horse race. You will see us and Dell trade for the top spot (in worldwide market share). We're not managing this business based on who's going to be No. 1 in a quarter. We're focusing on profitable (market share) growth," she said.

While Dell sold more PCs worldwide than HP in the first quarter, HP has sold the most notebooks for the past two quarters, according to IDC.

HP also plans to guard against Dell's low prices with its strategy to win business customers by lowering the cost of owning and managing large numbers of PCs over time.

The cost of buying a PC is about one-eighth the actual price of owning that machine over a period of four years, HP executives said. One way HP can cut down on those costs--and thus giving it a marketing advantage--could be by delivering PC-like products based on HP blade servers.

HP has been working a blade PC product for some time. Blade-based PCs look similar to standard PCs but offload many duties to servers. The blade option can cut management costs by as much as 70 percent and better secure data, said Shane Robinson, HP's chief technology officer.

Meanwhile, HP has also launched a broader new initiative, dubbed Adaptive Enterprise, in an effort to boost the return on investment that companies derive from computer systems. The strategy seeks to automate many aspects of computer networks or data centers, such as adapting to spikes in demand for processing power or allocating extra storage capacity on demand.

The initiative, which is based heavily on HP software and the company's service capabilities, counters competitor initiatives such as IBM's On Demand computing strategy and Sun Microsystems' N1 initiative.

The big bang
HP also is preparing a new printing and imaging product blitz. The company's Imaging and Printing Group plans to release 100 new products for consumers and small and medium-size businesses this year. HP will begin launching the products in time for the back-to-school season, executives said.

The plan is similar to, but more extensive than, the company's "big bang" of 2002, during which HP

"This year we are going to have big bang two," said Vyomesh Joshi, executive vice president of HP's Imaging and Printing Group. "This is going to be a significant change. What we'll do with our channel partners will create a completely new experience" for customers.

Now that HP has finished the process of integrating Compaq and is looking ahead to growth of profits and market share, Fiorina said, HP will consider future acquisitions.

But "you don't do deals because they are big. You do deals because they accomplish a certain objective," she said.

Without committing to any specific plans, Fiorina said HP is always evaluating acquisitions in areas where its products or services need to be shored up. "The two areas where those are most likely are the two areas we've always talked about: software and services," she said.