HP Outlines Revenue Risk for Compaq Deal

In its most detailed defense yet of its proposed acquisition of Compaq Computer Corp., Hewlett-Packard Co. said Wednesday that most of the revenue at risk from the combination would be in its least profitable operations, including personal computers and low-end network servers.

HP said it expects to lose about $4.1 billion in annual sales as overlapping product lines are eliminated and HP shifts more PC shipments to Compaq’s direct-to-customer system. The figure includes divestitures that might be required by antitrust officials, HP Chief Financial Officer Robert Wayman said.

Overall, about half the combined company’s $85.1 billion in revenue is exposed to risk--mostly the two firm’s non-printer hardware, HP said.

But the high-end computer systems sold by both companies, HP’s lucrative printing and printer supplies business, and the much smaller services and software units should survive intact, the company said in a lengthy e-mail to hundreds of shareholders filed with the Securities and Exchange Commission.

HP shares, which have fallen since the merger was announced, rose 20 cents to $20.70. Compaq dipped 9 cents to $9.02. Both trade on the New York Stock Exchange.

In the e-mail presentation and in calls with investors, HP executives said earnings per share would increase 17% in 2003, not fall slightly, as dissident HP director Walter Hewlett claims.

“This has important clarifications for investors around the Walter Hewlett filing,” Wayman said. “Some of what they did is inappropriate. It’s overly simplified.”

In addition to assuming that much more revenue would be lost, Wayman said, Hewlett estimated that all of those sales carried the same profit margin as that earned by the whole company.

But the printing business, where profit has sustained much of the rest of the company’s operations, is not in any jeopardy, Wayman said.

A spokeswoman for Walter Hewlett couldn’t be reached.

HP Chief Executive Carly Fiorina and the rest of the company’s board is working to save the $25-billion acquisition, which will be put to a shareholder vote sometime in the first half of next year.