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HP predicts 20 percent growth

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Carly Fiorina,
Predictions,
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HP

Stephen Shankland CNET News

Published: 09 Jun 2004 09:45 BST

Hewlett-Packard chief executive Carly Fiorina issued a rosy profit forecast for the coming years, as her company looks to dig deeper into customer pockets and expand into new markets.

"I do believe we can deliver EPS (earnings per share) growth of greater than 20 percent this year and for the next couple," Fiorina said on Tuesday at the company's financial analyst meeting.

HP faces plenty of rivals who are willing to aggressively cut prices on competing products. In PCs, printers and servers, HP is up against the distribution power of Dell. For more complex offerings, such as services designed to help customers adapt their companies with new technology, it faces IBM and, to a lesser degree, Sun Microsystems.

In its last quarter, HP reported profit growth and raised its sales forecast. But analysts are still wary.

"HP had a strong quarter across the board," Technology Business Research analyst Humberto Andrade said in an earlier interview, but "I never saw them post two or three strong quarters in a row."

Merrill Lynch analyst Steve Milunovich on Monday urged HP to split into two companies -- dividing printers from computers or consumer technology from higher-end enterprise products.

Fiorina said analysts should look at what HP is accomplishing. By the end of fiscal 2004, HP will have $7bn (£3.8bn) in new revenue, she said. "We created in organic growth a company the size of (storage company and Dell ally) EMC." Regarding HP's ambitious merger with Compaq Computer in 2002, she said: "We cannot say every step has been perfect, but we can say with confidence today we are where we intended to be."

And HP has finished laying a new foundation, she added. "We have done a lot of heavy lifting -- whether managing our way through the technology bust, consolidating 87 different product lines, executing through a highly complex merger. All of that heavy lifting is behind us, though we still have work to do to improve our business," she said.

That work positions HP to expand in new directions. The company's current products and services are for markets with annual sales of $710bn, but new work with security, management, digital media and other areas will mean more turf: "The addressable market we have the opportunity to go after is at least $1tn," Fiorina said.

Fiorina didn't directly address Milunovich's prescription, but she did indicate that she believes that his ideas are misdirected. In her view, technology companies must offer products that span "horizontally" across different segments, not focus on specific "vertical" niches.

For example, HP argues that it can help companies create digital content such as movies or music, help others package or distribute it, and then help consumers watch it or listen to it on PCs or other devices.

Fiorina showed a new three-year, three-pronged strategic plan for HP's profit growth:

First, HP would improve profitability by measures such as increasing direct sales rather than those in which profits are shared with sales partners, delivering products globally, wringing lower prices from suppliers and making HP itself more efficient.

Second, it would "grow its share of wallet": HP customers currently spend 10 percent of their budgets on HP products and services, a percentage HP will increase.

Third, it would build on existing offerings and expand into new areas, such as digital entertainment, simplified technology for small businesses and the sweeping "Adaptive Enterprise" push to help customers become more flexible.

Since HP launched Adaptive Enterprise in 2003, it's taken $7.8bn in orders for the initiative, said Peter Blackmore, executive vice president of HP's Customer Solutions Group.