Filed by Hewlett-Packard Company Pursuant to Rule 425
Under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-6
Under the Securities Exchange Act of 1934
Subject Company: Compaq Computer Corporation
Commission File No.: 333-73454
This filing relates to a planned merger (the "Merger") between Hewlett-Packard
Company ("HP") and Compaq Computer Corporation ("Compaq") pursuant to the terms
of an Agreement and Plan of Reorganization, dated as of September 4, 2001 (the
"Merger Agreement"), by and among HP, Heloise Merger Corporation and Compaq. The
Merger Agreement is on file with the Securities and Exchange Commission as an
exhibit to the Current Report on Form 8-K, as amended, filed by Hewlett-Packard
Company on September 4, 2001, and is incorporated by reference into this filing.
The following is a series of remarks provided by Carleton S. Fiorina, HP's
Chairman of the Board and Chief Executive Officer, during a February 13, 2002
conference call with financial analysts and other members of the public relating
to HP's fiscal 2002 first quarter and 2002 guidance. Also included in this
filing is series of selected questions and answers relating to the Merger.
Answers were provided during the call by Ms. Fiorina and Robert P. Wayman, HP's
Executive Vice President, Finance and Administration and Chief Executive
Officer.
[INTRODUCTORY REMARKS PROVIDED BY STEPHEN J. PAVLOVICH, HP'S DIRECTOR,
INVESTOR RELATIONS]
CARLETON S. FIORINA:
Thank you, Steve.
This afternoon we announced our first quarter results. Given the difficult
environment we are operating in, we are pleased with our performance... and I
want to thank the people of HP for their focus and hard work -- they didn't get
distracted when there was plenty of opportunity to do so.
Here's a quick summary.
We reported first quarter revenue of $11.4 billion, up 5% sequentially from
$10.9 billion in the fourth quarter and down 8% from the $12.4 billion reported
in the same period last year. This sequential top line growth -- driven largely
by strong sales in consumer and commercial PCs, digital imaging products and our
outsourcing business -- is particularly encouraging given that we were
anticipating a slight revenue decline at the start of the quarter.
Also encouraging is that we significantly increased gross margin. Pro forma
gross margin was 26.9%, up substantially from 25.7% in the prior quarter and
flat with last year.
We maintained our focus on managing our cost structure, keeping expenses
essentially flat sequentially -- up less than 1% on a pro forma basis -- and
down 2% year-over-year.
As a result, we reported pro forma earnings per share of 29 cents, compared with
19 cents in the preceding quarter and 41 cents in the year-ago quarter.
On the balance sheet side, we had another strong quarter in terms of cash
generation and inventory management. Cash flow from operations was $1.6 billion
during the quarter and we exited this quarter with more than $7 billion in cash
and short-term investments on the balance sheet. Again, this strong performance
was helped by solid inventory management -- inventory was down nearly $750
million in the quarter as we continue to improve our execution throughout the
supply chain.
Market conditions remain tough worldwide -- both in the consumer and the
enterprise space. We did see an uptick in consumer spending in North America,
Europe and Asia Pacific, largely holiday-related and centered in our digital
imaging and consumer PC businesses. While the holiday spending season was a
pleasant surprise -- and one we didn't let slip by -- we're not counting on it
repeating in this post-holiday quarter. And so our performance in this market
requires that we continue to be sharp in our execution
The enterprise market is even tougher and continues to be characterized by
sluggish corporate IT spending, aggressive competition and tough deal pricing.
This is particularly true among our largest corporate customers and in the
telecom, airlines, manufacturing and high-tech industries. Although we did see
some improvement in spending habits and overall tone across our business
customers, we continue to believe a recovery won't occur until the second half
of this year, and we're managing the business accordingly.
So with that backdrop let me offer a little bit of context and a few key
takeaways from this quarter's results, and you'll hear Bob echo some of these
takeaways as he talks more specifically about the segments.
First, the hard work of restructuring and refocusing HP during these past
two-and-a-half years has laid the foundation for an organization that has the
capability to lead. Our execution over these past two quarters demonstrates that
we are ready to take a decisive step to strengthen the business.
The people of HP can execute -- and they've proven it. Think about the
challenges these employees have had to face up to and overcome: a very difficult
economic environment worldwide; an industry undergoing rapid transformation;
intense competition; and a distracting proxy contest that none of us could have
predicted, but one we are determined to win. This team has shown their mettle
and turned in results that I think are worthy of praise.
But more importantly, I think these results demonstrate we know our business --
better than anyone else. We recognize where we are strong... and where we need
to strengthen.
On the consumer side, we got a lift from our digital imaging business. We had
strong sequential revenue growth, reflecting not only the better than expected
holiday buying season, but the fact that we have outstanding products in the
marketplace supported by smart marketing and a well-oiled supply chain. Our
digital cameras continue to be a strong performer -- a consistent seller, which
achieved the number one market share position in U.S. retail in November. Our
photo printer businesses showed 159% unit growth and also held the number one
U.S. retail market position.
And we are winning in low-end printing. HP retained the number one worldwide
position in the sub-$100 category with 34% share. And we're not relenting; we'll
continue to offer next-generation products that offer superior performance with
a cost structure specifically designed for this category.
In consumer PCs, we achieved solid profit and share and stronger than expected
revenues. We hit new market share highs -- especially in North America -- where
we captured 59% of the U.S. retail market in November according to the most
recent industry data. This strong performance on the consumer side, plus tight
operational focus, led to profitability -- although slight, but nevertheless
profitability -- in the overall PC business. We've got some good things going on
in this business. We need to build on them -- not tear them down as some have
suggested.
We are continuing to see good demand for supplies. Our supplies revenue showed
strong year-over-year growth of 9%, driven by an increase in unit volume. This
is a good example of where innovation counts -- it may seem like a
straightforward business, but being ahead of the innovation curve is critical to
driving demand. This quarter we introduced several new cartridge formats and are
working with new partners in areas like mail addressing, invisible document
coding, and ID cards -- something very top of mind these days.
On the enterprise side, we're focused on a few things: improving our market
position in the fastest growing segments, strengthening our end-to-end solutions
delivery capability, capitalizing on customers' movement toward premier support
and outsourcing providers, and controlling costs.
Our UNIX(R) business delivered healthy margins and good expense control. We are
profitable here. Superdome is now a proven technology that continues to gain
momentum. And we are rolling over our mid-range line and will have a strong
product line-up in the market when conditions improve.
In services, we saw outstanding year-over-year growth. In local currency, we
grew outsourcing 32%, and achieved 7% revenue growth in our highly profitable
support services, where our capabilities are really resonating with corporate
clients as they struggle to maintain effectiveness with shrinking IT budgets.
Support is a business that generates very strong double-digit operating profit
margins quarter after quarter -- it's a business, like supplies, where more is
better. And it provides terrific opportunities for up-sell.
So, we have real strengths. And we have made significant progress. But this
isn't the end-game. It's a platform to build on. We also know our weaknesses and
we know what we need to do to fix them.
In the commercial PC business, we are operating at a loss and we lack the direct
distribution capabilities needed to improve our competitive position.
In storage, while we have strong capabilities, we don't have enough capability
in networked storage to lead.
We still struggle in the low-end IA-32 server arena. More and more low and
mid-range applications will be delivered on Windows and Linux servers -- HP has
been losing momentum and losing money in our Windows business for almost two
years. Today, our overall IA-32 server unit market share is about 9%. And while
we've made great progress in Linux, our efforts here need to be beefed-up
quickly. We need a winning multi-OS server business to be successful in
enterprise computing and to execute on our strategy.
Our services organization has the skills and the capability to really succeed
and continues to outpace both the market's and our competitors' growth -- but it
needs more scale to compete for and win the biggest potential business
opportunities out there.
And it's worth repeating... too much of our profitability comes from our imaging
and printing business. We have to invest more in imaging and printing to lead,
which means our other businesses have to pay their own way. Continued growth in
imaging and printing requires creating new categories like digital publishing
and digital imaging. And these growth opportunities depend upon the capabilities
we have in computing and storage and servers and network management.
And this is where the merger with Compaq comes in.
HP needs to take decisive actions to further improve our market position and
profitability, especially in computing systems and commercial PCs. These
businesses are important pieces of our broader portfolio and must be
sufficiently profitable in their own right.
Let's talk about PCs. Over the last year-and-a-half Compaq has created a
successful direct delivery engine that has improved its annual inventory turns
in that business from 23 to 62 -- a more than 100% improvement year over year.
They ship about 70% of their commercial volume in North America through their
direct channel, comparable to Dell. Combining our successful retail PC business
model with Compaq's commercial business model allows us to achieve much more
together than we can alone.
Compaq is the leading provider of storage systems in the world on a revenue
basis. And so with Compaq we will become the number one player in storage, and
the leader in the fastest growing segment of the storage market: storage area
networks. Coupled with our high-end storage management capabilities, it's a
winning play.
With Compaq, we will become number one in Windows, number one in Linux, number
one in UNIX(R). This new strength and our market presence make us a much more
attractive partner. And with our combined market position in servers,
we will be able to engage the software community in building the applications
that will drive demand for Itanium systems.
With Compaq, we will double our service and support capacity in the area of
mission-critical infrastructure design, outsourcing and support, giving us the
meaningful scale to play a leadership role in this business. And we will double
the size of our sales force, allowing us to serve more customers more
effectively.
The simple fact is: HP has a lot going for it. But there are also significant
areas where a lot more is needed. And with Compaq we have a detailed plan -- not
just platitudes -- to address them.
And with that let me turn the call over to Bob to give you more detail on the
numbers.
[ADDITIONAL FISCAL 2002 FIRST QUARTER COMMENTARY PROVIDED BY ROBERT P. WAYMAN]
CARLETON S. FIORINA:
Thanks. Just a couple points and we'll open up the lines.
I think it's clear we aren't distracted by the merger or the challenge of
integration. And our customers aren't defecting. Our merger with Compaq has the
attributes of mergers that have succeeded.
This is a merger of like businesses coming together -- a merger of
consolidation, not diversification. HP and Compaq are in the same businesses, we
understand each other, we speak the same language.
It is a rare opportunity when a technology company can, at the same time, build
substantial market leadership and substantially reduce its cost structure. And
this
is possible because Compaq and HP are in the same businesses, pursuing the same
strategies, in the same markets, with complementary capabilities.
This is a merger that we expect to be substantially accretive even with revenue
losses baked in. This is a merger with lots of upside potential in both cost
synergies and revenue.
This industry is beginning to consolidate; and current technology industry
dynamics are much more akin to other consolidating industries -- where mergers
are not only workable, but a strategic imperative.
The timing of this deal is also important. Unlike so many mergers, particularly
in the high tech arena, we are doing this merger at the near bottom of a market
cycle not the top. That means valuations are fair, customers aren't making major
IT investments, and our competitors are in a holding pattern or dealing with
business model challenges of their own as they adjust to lower overall industry
growth rates. And perhaps most importantly, our employee base is stable.
Attrition at HP and Compaq are near all-time lows.
And, we're not leaving anything to chance. A group of more than 450 dedicated
people, between HP and Compaq, have been working around the clock to understand
the complexity of past mergers and make the right decisions for the new company.
We're drawing on our very direct experience spinning out Agilent as well as
Compaq's acquisitions of DEC and Tandem. And we're working with people who've
been involved in lots of mergers and know what makes the difference between
success and failure.
We are addressing the critical factors for successful merger execution --
including ensuring an unyielding focus on customers throughout the pre- and
post-close integration process; developing clear product roadmaps, defining
governance for the new company; preparing ourselves for Day One across every
level of the company; developing rigorous plans for capturing the cost savings
we have identified, as well as upside in revenues; and staying in constant
communication with employees and stakeholders. Interestingly, the adversity
we've faced has brought the two organizations even closer together and created
an even more unified and committed team.
We are on a path toward enhancing shareowner value and every day I think it's
becoming clearer: what these two companies can achieve together is greater than
what either company could achieve on its own.
And with that I'd like to open up the call to take your questions.
SELECTED QUESTIONS & ANSWERS:
RICHARD CHU, SG COWAN:
Carly, you said that you were not, you've proven that you're not distracted and
that customers are not defecting. There is a disconnect, I think, between the
sense that competitors are really poaching on your accounts. So I wonder whether
you can talk about beneath the surface in the enterprise sector as you talk to
customers in businesses [inaudible] do you feel that there is underneath the
surface some change that will begin to manifest itself, not in Q1 but in Q2? And
what kind of steps are you taking with respect to that?
CARLY FIORINA:
Well I think when we first announced this merger our competitors made a lot of
very understandable noise about their ability to take customersaway from us. I
think you may have noticed our competitors have been quite a bit quieter lately.
I think if you look at our strength in our major accounts we have continued to
grow those accounts in this quarter despite the difficult climate. I think it's
pretty clear in places like UNIX we are holding share across high end, midrange
and low end.
Our sales teams continue to have the opportunity to call on myself or any other
senior executive of HP when they need help because of a customer's concern over
distraction about the merger. And frankly, we're not getting calls.
And so I think while there may be a lot of rumor and innuendo floating out there
the reality is that we see in day-to-day interactions with customers they
understand this merger and frankly they are most focused on how we serve them
day in and day out and we feel we're serving them quite well.
Now we also agree that we should be prudent in our planning and that is why we
have baked revenue [loss] assumptions into the model of accretion that we've
delivered. But so far we are continuing to outperform those revenue [loss]
assumptions and I think that is a tribute to the people of HP.
BOB WAYMAN:
Richard, I would add as well that in certain product categories where there is
most uncertainty around the future product roadmaps each company has taken some
actions to in effect guarantee value to customers under a certain set of
circumstances. We think that's the right thing to do to deal with this period of
uncertainty and certainly we are working with our sales force to make sure that
we have all the right focus and incentives in place to deal with the attempts by
the competition to play on whatever uncertainty there might be.
CARLY FIORINA:
I guess the last thing I would say Richard is you made a comment, is there
something underneath the surface that will cause Q2 to be different than Q1.
Frankly, the thing that will be different in Q2 than Q1 is more certainty for
customers.
In Q2 we will have a determination on this merger. We will be able to give
customers detailed roadmaps. We will be able to talk with them about our go to
market plans. Things we cannot share with them today because we have not yet
completed the regulatory process.
And I believe that as customers gain more and more certainty about those product
line roadmaps and the specific details of their account plans their confidence
will grow not diminish.
# # #
JOEL WAGONFELD, BANK OF AMERICA SECURITIES:
Hi. I was wondering if you could elaborate a little bit on the comment about the
combination of HP and Compaq being able to better leverage ISVs to develop on
the Itanium platform. And specifically what your thoughts are with regard to
your strategy there?
CARLY FIORINA:
Well fundamentally what we are talking about is, both a very large installed
based but importantly an announced decision by both companies, actually prior to
this merger, that we were moving all of our operating systems onto the Itanium
platform. So you may recall that HP has been co-developing that platform with
Intel for some, I don't know, six years now. Compaq made a decision to move onto
that platform, announced decision to move onto that platform about a year ago.
And so we now have the product line roadmaps, the install base, the pull with
the ISV community to assure them that there will be a very large volume of
business going forward.
And fundamentally that's what is attractive to ISVs. We have had, we, meaning
HP, have had a specific Itanium focused ISV program in place for some time. We
are the first to company to roll operating systems onto Itanium in the market
place and we're getting a lot of very good reaction from the ISV community to
the Compaq merger announcement. So we'll continue with those programs.
# # #
GEORGE ELLING, DEUTSCHE BANK:
Your pressure in the enterprise space. Do you sense that your customers may also
be waiting until you merge with Compaq so they can benefit from product
enhancements such as innovating Compaq's storage offering into your own and
possibly other synergies? Or are they strictly dealing with what they have
today?
CARLY FIORINA:
Well I think there is a little of both in the sense that, first of all there's
no question, a slow economic environment helps us. And it's one of the reasons I
mentioned earlier, the timing of this deal is important. We think doing a deal
like this makes more sense at the bottom of the market than the top because
customers are moving slowly. There's no question that because customers are
moving slowly anyway, it doesn't cause them a lot of pain to say you know what
I'm going to wait here a couple months and understand clearly what these product
roadmaps are. In many cases I think the product roadmap customers are beginning
to figure them out because they deal with both companies and they know where we
have complimentary strength but I do think customers are eager to hear what our
product line roadmaps are.
Because we have virtually completely that part of our planning through our
detailed integration efforts we will be in a position to talk with customers
very soon after the merger closes and give them those detailed product roadmaps.
REBECCA RUNKLE, MORGAN STANLEY:
I guess quickly if I could delve just a little bit more into storage and what
specifically you thought there especially as it relayed to your HDS offering and
competitive dynamics, also what you're seeing from IBM in that space. [Inaudible
due to environmental noise] and then your comment Bob as it relates to computing
systems given how much traction you're getting elsewhere, what explicitly needs
to be done in addition to what's already being done to improve performance
there.
CARLY FIORINA:
Thanks. So let me talk a little bit about storage. First as I think we mentioned
we are, this is one place in the enterprise where we continue to see very
intense pricing pressure. I would say that our storage Q1 revenues sequentially
are down, less in some cases than our competitors. Certainly down less than
EMC's or Compaq's.
We are seeing XP and VA revenues in particular getting hit by continuing price
pressure. That's really in all regions. Having said that we had a particularly
strong month of January in North America for the VA product. We're also now
going to, we're in the process I should say of introducing our virtualization
products outside of North America.
Not that this is a high growth part of the business but tape automation
libraries which has been a relatively slow growing part of the business actually
showed some strengths and I think that is again because in this slow economic
time customers are relying more on technology they already have in place and in
their support of that technology rather than moving to something new.
And I think in the, before I hand it over to Bob, in the enterprise computing
space we believe very strongly that our merger with Compaq is a decisive step
which can allow us to substantially improve our profitability there by giving us
the scope and scale and market leadership we need in, particularly in the
Windows OS, by giving us additional scope and scale in Linux as well as UNIX and
by giving us a market leadership position in storage.
BOB WAYMAN:
I don't have too much to add to that. The cost cutting actions that we took
overall were a significant factor within the enterprise or computing system
space. We haven't seen all the benefits of that yet but we're starting to see
some. We did see an improved gross margin in the enterprise space.
The real issue is the top line. And I think that's largely a market issue for
now. Clearly though as Carly said, we have a real opportunity to address a step
function improvement in our cost and expense structure and our business model
when we put these two companies, enterprise businesses together.
Yeah, one of the challenges that a technology company always faces is can you
get your cost structure down faster than your revenues come down. And that's why
I said earlier, we believe the merger with Compaq does give us a rare
opportunity to both advance our market position, grow the top line and at the
same time substantially improve our profitability.
ANDY NEFF, BEAR STEARNS:
Two question if I could. Just in terms, just if you could go through the timing
issue. At this point I guess you're just waiting for the FTC approval. Is there
any other issues that are outstanding. And Carly you talked about how you're
going to get started fairly quickly. At what point could you start, could you
actually merge the two companies. Just give us a timing going forward what we
should look for.
CARLY FIORINA:
So you are correct. We are awaiting FTC deliberations. The vote has been
scheduled for March 19. We are, there's some things you have to do to wrap a
vote up but I will tell you for, while I'm not predicting the exact day one,
what I will tell you is that from a planning point of view, in our integration
planning efforts we have been assuming an operational date of April 1.
And that operational date means that we will have a whole set of things put
together. Web sites will be integrated, employees will get their paychecks with
HP on them. Customers will get the right answer when they call a customer
service center, whether it's an HP or a Compaq. Our customers will know who
their account teams are. We'll be able to rollout the detailed product roadmap.
So all of our integration efforts to date have been focused on an April 1
operational date and focused on making sure that we have the nitty gritty
details done that will permit to begin operating as a single company.
ANDY NEFF:
And then the second question is and maybe you'll go through this at the analyst
meeting, are there any sort of numbers that we can use for the first year in
terms of trying to put the two companies together. Any sort of assumptions or
[inaudible] so we could assume, to develop our models?
BOB WAYMAN:
We will provide those at a later point and time. I mean frankly we don't even
want to talk about that at the analysts meeting I think. We have given you the
kind of overall modeling that our decision was based upon. We will though when
we close or after we close, we will then be giving some more detailed metrics,
[timed] metrics that we will be using to measure ourselves against and we will
share key subsets of that with you.
CARLY FIORINA:
What we have said Andy as you know is that we expect $2 billion or the $2-1/2
billion to be completed at the conclusion of fiscal 2003. We have said that we
expect a set of personnel decisions, particularly in places like sales
management and administration to rollout fairly quickly over the first couple of
quarters. And the IT systems and R&D synergies would occur later on in fiscal
2003 and in some cases in 2004. And so we'll go through that again at the
analysts meeting but we're trying to give you a sense of the timing of these
without giving you a detailed model which would not be appropriate until the
company is in fact a new combined company.
STEVEN MILUNOVICH, MERRILL LYNCH:
Three questions. Number one: Bob do you have any channel inventories statistic
for the enterprise business, specifically UNIX? Number two: Carly, given the
environment we're in can you metaphorically look us in the eye and tell us that
HP didn't do anything to goose the numbers this quarter since it was such an
upside surprise? And number three: your buddy Walter's on the tape saying that
the strong earnings confirm that you don't need to do the merger? So I guess you
should've tanked the numbers instead. Do you care to respond to that?
CARLY FIORINA:
Okay let me respond to the second two and let Bob comment on the UNIX channel
inventory. At first I will metaphorically, literally and in every other
conceivable way look you in the eye and say these numbers are exactly what they
appear to be. Solid execution.
I agree with Walter Hewlett on one point. This is not a company in crisis. This
is a company that is strong enough to take a decisive step and smart enough to
know when to take it.
BOB WAYMAN:
So, I'm not sure we have any UNIX channel inventory with us here. We'll have to
get back to you with
that, Steve. Let me just add a couple of comments on the numbers. Here's the big
picture. You know, why would we boost the numbers if we already had a reasonably
strong quarter. That is, you know, we're way over the numbers, and there's just
no reason to go further, and you have to go look at where you would normally
look.
Inventory, receivables, gross margin. I mean, how do you boost the top line? You
give discounts or spend money, something to do it [inaudible]. Every measure, I
think it stands pretty clearly as a solid quarter, so I feel very good about
where we are on these numbers and I think you'll just have to watch us going
forward. You know, we heard a few comments on that. A lot of folks are hearing
comments on this environment that they're pushing too hard, and we're not. This
happened naturally.
This happens when you get extended and effective expense management, then
combined with a little revenue uptick. That's the natural force that's taking
place here. We'll pick out some UNIX numbers for you and for anyone else who
calls in. I don't have them with me here.
CARLY FIORINA:
Well get back to you on that.
# # #
CHIP BAILEY, WESTWOOD CAPITAL:
Two questions. The first is, I'm surprised to hear the comment about the
compensation piece being greater than expected due to the higher than expected
revenues. It seems like that issue came up a year ago and that there had been
some systems in place that were switched around in order to sort of capture that
so that such a thing would not occur again. I was wondering about that.
The second piece is, some sales people tend to just worry about who they're
going to report to, what's their territory, and how they're going to get paid.
I'm wondering, you know, what [inaudible] you've been able to share with the
sales force about Compaq sales force as well as Hewlett sales force to kind of
ease their concerns, if possible?
CARLY FIORINA:
Let me start with the compensation question because I appreciate you asking.
It's a very important distinction. I think what you may be referring to is in
the fourth quarter of 2000, where we did not execute well, and one of the issues
that hurt us in that quarter was incentive compensation for sales people was way
above plan. That is not the case here. What we are talking about here is a
company-wide performance bonus for every employee. This is something that we pay
semi-annually. It is called our company performance bonus, and it is tied
specifically to the achievement of our plans and key metrics of revenue and
profitability.
We accrue for the company performance bonus each quarter based upon the results
of that quarter. So, for example, in 2001, we paid out no bonuses, because given
the severity of the downturn, we clearly were not achieving our internal plans.
This quarter, because we, so far, have over-achieved, we accrued more than the
target for the company performance bonus, and that is a number that's included
in the expense line that you see.
Secondly, in terms of sales people, first, we believe one of the subtle, but
important, benefits of the Compaq merger is that we will increase the number of
quota-carrying sales people seen on the street, so to speak, from 7,000 to
15,000. We are being explicit with our sales people that we want to keep all
those quota-carrying feet on the streets, because doubling the size of our sales
force gives us an opportunity to deepen our penetration of key accounts and
broaden our coverage.
What we have also shared with them in candor is that where there is overlap, it
will be in management positions, so, for example, country management or sales
management, and there we have begun to roll out a pretty explicit process for
how we will select the people in those positions. The selection process will be
well understood. People will be represented by people who know them.
We will be selecting the best person for the job. This won't be based on
politics or who knows whom, and so, I think both those messages are resonating
well with sales people. That is, one, we want a doubling in the size of our
sales force. We're trying to keep that many feet on the street, and, in places
where we have redundancy, which is really at management levels, the process we
use will be transparent and fair and they will be represented well.
# # #
LAWRENCE BORGMAN, CANTOR WEISS:
Two questions. One, I was a little puzzled about your disappointment in the
Windows NT server area, which you discussed. It seems like with your experience
in PCs that that ought to be an area that you could excel in. Sun seems to be
under some pressure there, and, secondly, with DRAM prices having moved up
substantially since November, will that have an impact on your gross margins in
the PC business and the server business in the coming quarter?
CARLY FIORINA:
Okay, so to the first part of your question, I may have misunderstood you,
because I'm not quite sure whether you're asking about Windows servers or
mid-range Sun, since Sun isn't in the Windows game, so let me try and take a
shot at what I think you're asking. Our Windows product lines, IA-32 to the NT
server product line, we have, in fact, a fairly strong product line. Our market
position has been deteriorating for some time, and market position and
profitability are very closely linked, and so, fundamentally, what we've had
going on in our NT business for a number of years now is decelerating market
momentum and, therefore, decelerating profitability or declining profitability.
We think having a leading position in all three operating systems, UNIX,
Windows, and Linux is critical to serving customers' requirements going forward
and critical to our strategy and that is why we think we get quite a large
advantage by merging with Compaq because they are the number one NT player with
4+ times the market share we have, and they're making money at it.
I hope I've answered your question. If I misunderstood it, we'll try to get it
another time.
BOB WAYMAN:
The second part of the question had to do with DRAM pricing and how that might
reflect into margins, and that's a really tough question to answer.
Certainly, there are signs given that capacity and demand are more in line, that
some of the pricing pressure that we saw this past year is not quite as intense
as it was before, and that could result in better margins, but it's speculative.
We're not necessarily counting on that.
Okay, one final question, then we're going to have to go.
RICHARD CHU:
Yes, just a quick follow-up, Bob. Bob, can you tell us what the net cash
[inaudible] you're in at the end of Q1. That is to say, what was the long-term
complement? Do you think this [inaudible] and the second.
BOB WAYMAN:
Is that cash balance or?
RICHARD CHU:
Yeah. Closing of the transaction. You mentioned April 1. What is your
understanding of whether, if that is a close date? Whether Compaq will have to
report their March quarter of these outstanding 10-Q?
BOB WAYMAN:
You know, if that is the closing date, then they would have to report their
quarter. We can't call it quite that close. We'll just have to see if they have
a stop period report or not, but I'm not sure if I got your first question.
RICHARD CHU:
The question is, what was the net cash number at the end of March? At the end of
Q1?
BOB WAYMAN:
So, let me answer it, two things to make sure I get it right. Total cash
including cash and equivalents, short term investments and long term cash like
investments was $7.7 billion. So, there's $500 million of cash embedded in the
long term asset or other asset category. Net cash was $1.8 billion, so that's
$7.7 of gross cash offset by $5.8 and there's some rounding going on here, $5.8
of debt for a net cash position of $1.8 billion.
[END OF TRANSCRIPTION]
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that involve risks,
uncertainties and assumptions. If any of these risks or uncertainties
materializes or any of these assumptions proves incorrect, the results of HP and
its consolidated subsidiaries could differ materially from those expressed or
implied by such forward-looking statements.
All statements other than statements of historical fact are statements that
could be deemed forward-looking statements, including any projections of
earnings, revenues, synergies, accretion or other financial items; any
statements of the plans, strategies, and objectives of management for future
operations, including the execution of integration and restructuring plans and
the anticipated timing of filings, approvals and closings relating to the Merger
or other planned acquisitions; any statements concerning proposed new products,
services, developments or industry rankings; any statements regarding future
economic conditions or performance; any statements of belief and any statements
of assumptions underlying any of the foregoing.
The risks, uncertainties and assumptions referred to above include the ability
of HP to retain and motivate key employees; the timely development, production
and acceptance of products and services and their feature sets; the challenge of
managing asset levels, including inventory; the flow of products into
third-party distribution channels; the difficulty of keeping expense growth at
modest levels while increasing revenues; the challenges of integration and
restructuring associated with the Merger or other planned acquisitions and the
challenges of achieving anticipated synergies; the possibility that the Merger
or other planned acquisitions may not close or that HP, Compaq or other parties
to planned acquisitions may be required to modify some aspects of the
acquisition transactions in order to obtain regulatory approvals; the assumption
of maintaining revenues on a combined company basis following the close of the
Merger or other planned acquisitions; and other risks that are described from
time to time in HP's Securities and Exchange Commission reports, including but
not limited to HP's annual report on Form 10-K, as amended on January 30, 2002,
for the fiscal year ended October 31, 2001 and HP's registration statement on
Form S-4 filed on February 5, 2002.
HP assumes no obligation and does not intend to update these forward-looking
statements.
ADDITIONAL INFORMATION ABOUT THE MERGER AND WHERE TO FIND IT
On February 5, 2002, HP filed a registration statement with the SEC containing a
definitive joint proxy statement/prospectus regarding the Merger. Investors and
security holders of HP and Compaq are urged to read the definitive joint proxy
statement/prospectus filed with the SEC on February 5, 2002 and any other
relevant materials filed by HP or Compaq with the SEC because they contain, or
will contain, important information about HP, Compaq and the Merger. The
definitive joint proxy statement/prospectus and other relevant materials (when
they become available), and any other documents filed by HP or Compaq with the
SEC, may be obtained free of charge at the SEC's web site at www.sec.gov. In
addition, investors and security holders may obtain free copies of the documents
filed with the SEC by HP by contacting HP Investor Relations, 3000 Hanover
Street, Palo Alto, California 94304, 650-857-1501. Investors and security
holders may obtain free copies of the documents filed with the SEC by Compaq by
contacting Compaq Investor Relations, P.O. Box 692000, Houston, Texas
77269-2000, 800-433-2391. Investors and security holders are urged to read the
definitive joint proxy statement/prospectus and the other relevant materials
(when they become available) before making any voting or investment decision
with respect to the Merger.