Fool.com: A New Day for Hewlett-Packard, Agilent (Breakfast News) November 18, 1999

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Thursday, November 18, 1999

"If you don't know where you are going, you'll end up somewhere else."
-- Yogi Berra

A New Day for Hewlett-Packard, Agilent

By Richard McCaffery (TMF Gibson)

Computer, printer, and related services company Hewlett-Packard (NYSE: HWP) spun off Agilent Technologies (NYSE: A) last night, selling 72 million shares in an initial public offering that netted $2.1 billion. The shares were priced at $30, higher than originally expected as demand for the issue was strong.

The company was spun off to allow both companies to focus on core businesses. Agilent, which had revenues of $8 billion last year, focuses on testing and measurement devices, telecommunications and hardware supplies, semiconductor products, and healthcare solutions. Hewlett-Packard, the world's second largest computer company, makes computers, printers, computer peripherals and offers related services.

The advantage for shareholders is that a pure play computer company, or testing and equipment company, is easier to track and value.

Currently, Hewlett-Packard owns 84% of Agilent's stock, but it plans to divest ownership by the middle of next year by distributing the shares to Hewlett-Packard shareholders.

Also last night, Hewlett-Packard reported fiscal fourth-quarter net income from continuing operations of $760 million, or about $0.75 per share, excluding expenses related to spinning off Agilent. The results were slightly ahead of analysts' reduced expectations of $0.73, according to First Call/Thomson.

Expectations had been lowered as a result of the recent earthquake in Taiwan, which disrupted supply chains, and slower-than-expected growth in some areas. Analysts had expected earnings around $0.99 per share.

Revenues grew 10% in the fourth quarter to $11.4 billion, up from $10.3 billion last year. This is good news for investors and bodes well for new Chief Executive Carly Fiorina, who guided analysts to expect revenue in the 10% to 13% range for the fourth quarter.

Revenue growth was sluggish last year, and Fiorina, hired from Lucent (NYSE: LU) in July to replace retiring executive Lew Platt, made revenue growth a focus for the company going forward. Sales in Asia and Latin America have rebounded from last year, helping spur momentum, Fiorina said.

Strong sales of imaging and printing system products also contributed to growth, as well as a brisk PC business. High-end Unix system server revenue was strong, but the rest of the server division returned flat results. This is a key area to watch as rival Sun Microsystems (Nasdaq: SUNW) grabs market share from its larger competitors. IBM (NYSE: IBM) also had a difficult quarter regarding server sales. The fight for server revenue next year should be keen.

Net revenue for the full year grew 7% to $42.4 billion, while net earnings grew 18% to $3.1 billion, or $2.97 per diluted share.

Fiorina has set the revenue bar higher in 2000 as she's looking to grow the top line in the 12% to 15% range.

News to Go

Computer hardware and services company Compaq (NYSE: CPQ) and telecommunications holding company Cable and Wireless plc (NYSE: CWP) plan to invest $500 million over the next five years to build a global Internet partnership. Under the plan, the two will offer e-commerce services with Cable and Wireless acting as an applications service provider, and Compaq providing hardware and services.

Market maker Knight/Trimark (Nasdaq: NITE) announced the acquisition of Arbitrade Holdings, an options market maker and asset manager, in a stock deal worth roughly $459 million. The move is Knight's first push into the options market and is part of an effort to broaden its revenue stream.

Telecommunications services provider AT&T (NYSE: T) has purchased privately held cable operator Chambers Communications in a stock and cash deal. Terms were not disclosed. AT&T is buying systems in California, Washington, Oregon, and Idaho. Chambers has 80,000 subscribers.

Internet data and analysis software company Accrue (Nasdaq: ACRU) is acquiring privately held NeoVista Software in a stock deal worth about $140 million. NeoVista, which will become a wholly owned subsidiary, makes analytical software for retail, financial, and insurance companies. The deal is expected to close in January.

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