Still Hold Hewlett-Packard

Also: analysts' opinions on Adaptec and Corning

Hewlett-Packard (HWP ): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

The No. 1 copier maker preannounced a Q3 EPS shortfall, citing deteriorating global economic conditions. Hewlett-Packard now sees Q3 revenue down 14%-16% year-over-year vs. S&P's estimate of a 7% decline. This represents roughly a 14% drop vs. Q2, vs. the company's guidance of revenue coming in flat to down 5%. Consumer sales are seen down 24%, but the bright spot is outsourcing, which is expected to be up 20%. Gross margin is forecast at 25%-25.5% vs. S&P's 26% estimate, due to pricing pressures and lower volume. Hewlett-Packard also plans to cut another 6,000 jobs to yield savings of $500 million annually.

Adaptec (ADPT ): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

The computer hardware maker posted Q1 EPS of $0.06 vs. $0.26. vs. S&P's $0.04 estimate, but the EPS quality was poor -- with the upside due to non-operating income. Revenue fell 28% to $111 million, in line with the company's preannouncement. Gross margin of 48.8% vs. 58.2% was below S&P's estimate, and was hurt by low volume, a less favorable sales mix and higher inventory reserves. The company sees further Q2 weakness abroad with revenue of $90-$98 million, below S&P's $110 million estimate and EPS of $0.02-$0.04 vs. S&P's $0.06 estimate. Adaptec sees fiscal 2002 (March) revenue of $400-$425M, vs. S&P's $490M estimate. S&P is cutting the below-consensus EPS estimate of $0.38 to $0.31. With more than $6 a share in cash and investments, S&P says hold the shares.

Corning (GLW ): Maintains 3 STARS (hold)

Analyst: Ari Bensinger

Before special charges, Corning posted Q2 EPS $0.29 vs. $0.31, above the Street's mean. Optical fiber (45% of sales) volume rose 25%, while pricing remains surprisingly stable. The company is seeing strong international fiber demand, particularly in China. Fiber mix is shifting to lower-margin, non-premium products. Photonic (10%) component revenue fell 33% on a weak optical transport market. High-margin liquid crystal display (5%) products gained 45%, but were impacted by pricing pressure and the weak yen. Corning sees the telecom market remaining turbulent.

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