Updated from Feb. 13

Hewlett-Packard's ( HWP) quarter was so good it made Wall Street suspicious. Despite lagging IT spending, economic uncertainty and everything else accompanying the downturn, H-P crushed analyst estimates for the quarter that ended Jan. 31.

After the market closed Wednesday, H-P reported $11.4 billion in revenue and a profit of 25 cents a share in the first quarter of its fiscal 2002, according to generally accepted accounting principles.

Excluding one-time items such as acquisition costs, H-P posted 29-cents-a-share pro forma earnings to beat the Street's raised expectations. Analyst consensus called for $11.19 billion in revenue and pro forma 25 cents a share in profits, as tallied by Multex.com.

Even more impressive, consensus expectations were less than 10 days old. Wall Street came by its estimates after H-P updated its revenue and earnings guidance on Feb. 4. The company reported an year-end surge in its PC and printing businesses that allowed it to offer projections of increased revenue from the fourth quarter's $10.9 billion and a "substantial" lift in earnings.

The earnings' tentative reception was reflected in a research note from CSFB Thursday. The brokerage maintained its hold rating, noting the upside was generated almost entirely through consumer sales, something the company concedes it won't repeat in the second quarter. CSFB noted there weren't any signs of a pickup in corporate IT spending.

On Instinet, the company's shares were gaining 1.3% to $21.25.

The computer maker's first quarter held up nicely compared with the first quarter of 2001's $11.9 billion in revenue, sliding 4%. (That $11.9 billion figure was calculated with different accounting standards than H-P currently uses; H-P provided a $12.4 billion figure in its Wednesday press release, which would characterize the first quarter of 2002's results as an 8% drop from the first quarter of 2001.)

In the first quarter a year ago, the company put together only a $141 million net profit, compared with $484 million in the most recent quarter. At that time, however, H-P tallied a 37 -cents-a-share pro forma profit in the first quarter of 2001, 21% better than the first quarter of 2002.

The upside stunner left H-P executives arguing their way through explanations of how their quarter could hit almost double previous profit projections.

"I will metaphorically and literally and in every other conceivable way tell you these numbers are exactly what they seem to be: solid execution," said CEO Carly Fiorina.

Fiorina said the company's strong quarter showed it was not pursuing its acquisition of Compaq ( CPQ) from a point of weakness. "It's clear that we are not distracted by the merger or the challenge of integration," she said. "Our customers are not defecting."

Fiorina further defended the controversial merger of the two computing giants, saying, "We are doing this merger at the near bottom of the market cycle, not at the top. Valuations are fair. Customers are not making big IT investments and our competitors are in a holding pattern, making business adjustments of their own."

H-P closed up 21 cents, or 1%, to $20.98 Wednesday. After hours the stock rose 0.6%, according to Island.

Management doesn't plan to repeat the magic in its second quarter, however. The company guided investors to expect revenue to be down "modestly," with earnings and gross margins holding steady. Flexing its expense control, the company's gross margin climbed 1.2% sequentially to 26.9% in the first quarter of 2002.

"A number of factors really helped and surprised us in Q1," said CFO Bob Wayman. But he added that H-P is not confident that that is a sustainable uptick, given corporate spending habits and Latin America's economic troubles. "It was a pleasant surprise, a bonus. We hope it continues, but it might not."

In the first quarter, the company got an unexpected boost from its digital cameras and photo printers, with revenue in that combined area growing 30% sequentially, as well as in scanners, which were up 21% over the prior quarter. The surprising demand for printing and imaging devices led to a backlog of orders and depleted inventory levels.

Revenue in the hot-button consumer PC segment jumped 22% sequentially, but the corporate computer and server business grew just 4% in the same period. Wayman argued that "weak enterprise spending continues to present a challenge" for H-P.

Fiorina also emphasized the spending issue, reporting from her vantage point that she's not convinced yet of a second-half rebound in 2002 tech spending. "People are holding budgets very tight and waiting until they see clear signs of recovery to loosen purse strings," she said.

Results in the services group -- hoped to be one of the main beneficiaries of the H-P joining with Compaq -- were up a weak 1% sequentially. Service powerhouse IBM ( IBM) had slow sequential growth in the December quarter, as well.

Intended merger partner Compaq reported a strong December quarter finish, carried by computing sales, which current industry trend-setter Dell ( DELL) alluded to in its January revenue surprise, delivered midway through the fourth quarter of Dell's fiscal 2002.

PC chip suppliers Advanced Micro Devices ( AMD) and Intel ( INTC) offered similar testimony that consumers' cool attitude toward computers thawed at year's end.

Rivals IBM and Gateway ( GTW) were not as fortunate.

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