<BREAKFAST WITH THE FOOL>

Tuesday, March 2, 1999

"Gossip is when you hear something you like about someone you don't." -- Earl Wilson

Latest Market Numbers

HP May Split Up Businesses

Hewlett-Packard (NYSE: HWP) is expected to announce after today's close a massive restructuring that could involve splitting up its operations into at least two separate publicly traded companies, The Wall Street Journal reported. The well-established Palo Alto, California-based firm has seen its shares underperform the S&P 500, not to mention its computer-hardware brethren, over the last two years. Breaking up its wide-ranging product lines could improve the company's focus and results -- and rekindle what has become a strained love affair with investors and Wall Street analysts.

Indeed, HP describes itself in press releases as "a leading global provider of computing, Internet and Intranet solutions, services, communications products and measurement solutions." In other words, the company that began by selling audio oscillators in 1938 now sells just about everything technological under the sun, including PCs, printers, scanners, copiers, software, test and measurement equipment, medical equipment, chemical analysis products, and electronic components. HP gets about 86% of its sales from computer products, with about half of that from printers and supplies such as toner. Test and measurement equipment comprise about 8% of sales, while medical equipment makes up some 3%.

HP was one of the hottest tech companies earlier this decade, but recently has disappointed shareholders by issuing earnings warnings and failing to boost revenue and earnings growth amid price cuts for PCs and printers. The company has been late to deliver some servers and, as a result, has lost market share to rivals such as IBM (NYSE IBM) and Sun Microsystems (Nasdaq: SUNW). In its fiscal first quarter ended January 31, its sales of Unix servers fell, while revenue from test and measurement equipment dropped 14%. Total sales for the quarter inched up a mere 1% to $11.94 billion. Even though the company topped fiscal Q1 earnings estimates, it projects fiscal 1999 sales growth will come in at the low end of its earlier forecast of 8% to 10% due to weakness in North America and Europe.

News to Go

French telecommunications equipment company Alcatel SA (NYSE: ALA) said it will acquire Calabasas, California-based Internet switches and routers maker Xylan Corp. (Nasdaq: XYLN) for about $2 billion, or $37 a share in cash -- a premium of about 37% over Xylan's closing price yesterday of $26 15/16 and roughly 75% higher than Xylan's share price before acquisition rumors recently began fueling its share price upward. Alcatel already owns roughly 6.5% of Xylan and accounted for more than 11% of Xylan's revenue in 1997, the latest figures available.

PC maker and direct seller Dell Computer (Nasdaq: DELL) will unveil on Wednesday a new one-stop website it bills as "a new shopping experience" designed to sell a wide range of computer equipment, including printers and storage devices, directly to consumers.

Sun Microsystems (Nasdaq: SUNW) reportedly will announce today that it will distribute its chip designs to outside developers for free, a radical plan for advancing its microprocessor technology a la the Linux operating system and other Internet programs that have spread rapidly. The Palo Alto, California-based company hopes to attract a broad new community of developers, especially academic researchers and startups that normally couldn't afford Sun's existing fees.

PC direct seller Micron Electronics (Nasdaq: MUEI) warned that its fiscal second quarter (ending March 4) sales will drop 6% to 9% from the $403.5 million it reported in the first quarter. While overall gross margins will be flat compared with the previous quarter, PC gross margins are projected to fall about 1 percentage point from 15% in Q1. The company, scheduled to announce Q2 earnings on March 22, will hold a conference call today at 3:30 p.m. Mountain time. To take part, dial (630) 395-0074. The pass code is "mid market."

Two VPs at DaimlerChrysler (NYSE: DCX) have resigned to take jobs at rival Ford Motor Co. (NYSE: F). So far, five top former Chrysler Corp. executives have left since the third largest U.S. automaker was acquired by Germany's Daimler-Benz AG for $36 billion last November.

Large appliances maker Whirlpool Corp. (NYSE: WHR) said it plans to keep its Brazilian compressor-manufacturing unit and expects double-digit earnings for the first quarter and for the year. The company added that it will buy back up to $250 million in stock.

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Yi-Hsin Chang (TMF Puck), Writer
Jennifer Silber (TMF Amused), Editor