Hewlett-Packard

(HPQ) - Get Report

on Tuesday said it expects to grow profit by more than 20% in fiscal 2004 and announced that it will combine its profitable consulting business with its struggling enterprise hardware unit.

"Clearly, we believe the economy is recovering," CEO Carly Fiorina said during the company's analyst day in New York. Fiorina and CFO Bob Wayman said they are comfortable with analysts' estimates for fiscal 2004 and also noted that the first quarter is "clearly on track."

Analysts polled by Thomson First Call expect the company to earn $1.43 in 2004, up 23% from last year's profit of $1.16, while revenue is expected to grow nearly 6% from $73 billion to $77.3 billion. For the current quarter, the company is expected to earn 35 cents a share on sales of $19.3 billion.

H-P has been under pressure at the low end of the computer business from

Dell

(DELL) - Get Report

and the high end from

IBM

(IBM) - Get Report

. Changing the way it sells computers and services, the company believes, will allow it to grow revenue while continuing to cut costs from its operations.

Wall Street's reaction to H-P's news was muted. In recent trading, shares were off 34 cents, or 1.5%, to $22.14 on moderate volume. Goldman Sachs analyst Laura Conigliaro noted H-P is suggesting that it can sustain earnings growth above 20% beyond 2004.

"H-P needs to succeed in what is a clear 'show me' mode for investors," she said. Nevertheless, she said that her first take on the day's news was positive. (Goldman Sachs has an investment banking relationship with H-P.)

Toni Sacconaghi of Bernstein was even less impressed. During an interview on

CNBC

, he said that the company would have done better as a standalone entity than it has since the merger with Compaq. (Bernstein does not do investment banking.)

Although Fiorina sounded upbeat about H-P's future, she said she does not see signs of an end-of-year budget flush that would boost information technology spending. "I think most

chief information officers and CEOs want to exit the year not spending what they don't need to spend," she said.

Despite the apparent recovery, Fiorina said she expects IT budgets to grow only in the low-single-digit range in 2004, far below the torrid spending of the late 1990s.