Financial Update: HP Misses 4Q Forecasts. Network Appliance Tops Estimates. IDC Research Includes Channel Economics.

November 17, 2000

SHORT TAKES

HP MISSES 4Q FORECASTS

New York, N.Y. — Hewlett-Packard Co. reported fiscal fourth-quarter earnings that came in well below Wall Street forecasts, citing currency and expense problems, and its stock tumbled on the news. The world’s No. 3 computer maker also said it ended talks with the accounting firm of PricewaterhouseCoopers about buying its consulting business. The news sent Hewlett-Packard stock reeling after the opening bell Monday. HP, a component of the Dow Jones industrial average, sank $5.63 to $33.50 in early trading, or almost 14 percent. The Palo Alto, Calif.-based company reported profit of 41 cents a diluted share excluding extraordinary items, up from 36 cents a share a year earlier but below the 51-cent consensus forecast of analysts surveyed by First Call. Revenue rose 17 percent to $13.3 billion.

“We are pleased that revenue growth is accelerating, but very disappointed that we missed our EPS growth target this quarter due to the confluence of a number of issues that we now understand and are urgently addressing,” Chief Executive Carly Fiorina said in a statement. “I accept full responsibility for the shortfall.” Fiorina attributed the decrease in profitability to margin pressures, adverse currency effects, higher-than-expected expenses and business mix. “The good news is that our business is healthy, demand is strong, and we are making good progress against our strategic objectives as we continue the hard work of reinventing HP,” Fiorina said. “We are determined to succeed and are not backing away from our growth targets.” Fiorina also expressed disappointment that HP and PricewaterhouseCoopers could not reach an “acceptable agreement” in acquiring PwC’s consulting business and said that to further pursue the acquisition would be detrimental to HP. “Given the current market environment, we are no longer confident that we can satisfy our value creation and employee retention objectives – and I am unwilling to subject the HP organization to the continuing distraction of pursuing this acquisition any further,” said Fiorina.

NETWORK APPLIANCE TOPS ESTIMATES

San Diego, CALIF. — Network Appliance hurdled analysts estimates in its second quarter Tuesday, earning $36.6 million, or 10 cents a share, on sales of $260.8 million. First Call Corp. consensus expected the computer network storage maker to earn 9 cents a share. Network Appliance shares closed up $11.75, or 14 percent, to $96.25 ahead of the earnings report. The $260.8 million in sales marks a 109 percent improvement from the year-ago quarter when it raked in $16.1 million, or 5 cents a share, on sales of $124.7 million.

“Overall demand for Network Appliance products continued to grow during the quarter,” said CEO Dan Warmenhoven in a prepared release. “We delivered new hardware and software essential to our market strategy of becoming the leading provider of scalable, end-to-end storage networking and content delivery platforms for Fortune 2000 businesses.” Network Appliance also announced that it has completed its $75 million acquisition of WebManage Technologies, a developer of content distribution and analysis software. Last quarter, Network Appliance beat the Street when it earned $32.3 million, or 9 cents a share, on sales of $231.2 million. Its shares moved as high as $152.75 in October after falling to a 52-week low of $22.38 last November. All 22 analysts following the stock maintain either a “buy” or “strong buy” recommendation. First Call Corp. consensus expects it to earn 40 cents a share in the fiscal year.

IDC EXPANDS RESEARCH TO INCLUDE CHANNEL ECONOMICS

Framingham, MASS. — IDC announced that it is significantly expanding the scope of its hardware channel research, introducing a new continuous information service that will focus on the economics of the channel. The new program, Channel Business Models for the New Economy, will examine the viability of both new and existing business models. Its flagship product will be an annual state of the channel report, which will assess the financial viability of the channel and all its participants. “We’re extremely excited about this new program,” said Janet Waxman, program director of IDC’s Systems and Storage Distribution Channels research. “It adds a new dimension to IDC’s hardware channels research and will help our clients foresee and prevent chinks in the armor of their sales and marketing efforts that could have devastating consequences. I think there is a great deal to be learned in this research.”

IDC has hired Mark O’Donnell to head up its Channel Business Models for the New Economy program. His start date is January 2, 2001. O’Donnell’s experience will enhance the credibility of IDC’s hardware channels research. He comes to IDC from ITworld.com, an Internet resource site for IT professionals, where he was vice president of finance. Previously, he worked in the manufacturing industry for Allied Signal, where he managed sales analysis and strategic channel planning for the Automotive Aftermarket Division. He also worked as director of Corporate Finance for Harcourt General, raising over $500 million in debt capital and analyzing a multitude of companies and industries for investment. “Mark’s background in finance, manufacturing, and the IT industry makes him uniquely qualified to lead this new program,” Waxman said. “We fully expect he will make significant contributions to our channels research and enable us to offer an expanded product line. Customers have already expressed a tremendous interest in this research.” Additional information can be found at http://www.idc.com .

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