HP's Strong 1Q Doesn't Calm Debate Over MergerHP's Strong 1Q Doesn't Calm Debate Over Merger

Hewlett-Packard's strong financial results for the first quarter didn't to cool the heated debate over the company's proposed merger with Compaq. For the quarter ended Jan. 31, HP on Wednesday reported a net income of $484 million, or 25 cents a share, nearly three times the $141 million, or 7 cents a share, earned during the same quarter a year ago.

During a conference call with analysts, CEO Carly Fiorina said the strong showing proved the company was on the right track and reiterated arguments supporting the proposed $23.5 billion merger, which goes to a shareholder vote March 19. "It's a rare opportunity when a technology company can at the same time build substantial market leadership and substantially reduce its cost structure," Fiorina said. However, opponents, who include the families of the company's two co-founders, said the results showed the company didn't need Compaq. "We believe HP needs to focus on its strengths," board member Walter Hewlett, the most vocal critic among family members, said in a prepared statement.

Not all the news out of HP was good. CFO Bob Wayman said the company is expecting a modest revenue drop in the second quarter ending April 30 compared with the first quarter. Continued weakness in corporate spending and a drop in consumer spending are expected to contribute to the decline.

Higher-than-expected consumer spending was a large factor in the first quarter, HP officials said. Revenue in its imaging and business-systems unit increased 2% from the fourth quarter, and embedded and personal-computing systems jumped 22% sequentially. Year to year, the company reported declines of 2% and 13 %, respectively. Revenue from the service division was up 2% from a year ago.

On a pro forma basis, which excludes charges related to several completed and pending acquisitions, including the Compaq deal, net income was $564 million, or 29 cents a share, compared with $812 million, or 41 cents a share, for the same period a year ago. Revenue was $11.4 billion, an 8% dip from the $12.4 billion reported a year ago.