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Investors Await H-P Printout

In its first quarter since Carly Fiorina left, the spotlight will be on the new CEO's path for the company.

The Mark Hurd era has arrived at



but it's unclear what exactly that entails.

H-P reports second-quarter financial results after Tuesday's closing bell, which will provide an opportunity for the technology giant's new CEO to tell the public about where he wants to take the company. More likely, though, investors are in for more waiting -- and more stock volatility -- as he keeps specifics to a minimum and continues to plan for change.

The Palo Alto, Calif.-based company received a boost to its stock when Hurd joined the company as chief executive on March 29, but shares have bounced around since then. They have drifted down 5% to $20.77 since the initial boost from Hurd's appointment. For the year, shares are down 1%.

Investors are now in a holding pattern while Hurd develops his vision. He's been on the job only seven weeks, and most company watchers aren't expecting many seismic changes to be announced Tuesday, other than the possible detailing of accelerated cost-cutting.

That next public event for H-P was to be an analyst meeting in June, but a company spokesman says Hurd asked that the event be pushed back until later in the year. With that delay, Hurd is now firmly in control of H-P's destiny.

As for specific financial expectations, analysts expect second-quarter earnings excluding charges of 36 cents a share and sales of $21.3 billion, on average, according to Thomson First Call. At the quarter's start, H-P predicted earnings excluding charges between 35 cents and 37 cents a share and sales between $21.2 billion and $21.6 billion.

These early days of Hurd's tenure mark a crucial period for the company, which has lately struggled to compete with the broad offerings of



and the hyperefficient operations of



. H-P seems also to have

helped create a price war for printer and imaging products, which account for the bulk of H-P's profit.

It was partly in response to H-P's competitive underperformance that Carly Fiorina was forced out as chief executive early this year. Hurd, who is highly regarded on Wall Street for his operational abilities, was

tapped for the corner office from



, a smaller tech company but similar in its diverse product base to H-P.

Hurd held two press conferences on the day his appointment was announced and, while

his remarks were spare, the CEO highlighted that his favored business indicators were return on invested capital and gross margins.

"I've got no doubt that he already has his arms firmly around the organization and knows what needs to be changed sooner rather than later," says Jeff Embersits, principal with Shareholder Value Management, a portfolio subadvisory firm that's long H-P 2007 LEAPS. He says more significant changes are still months away. "He will give people time to get their businesses in shape and run them."

One area

in need of improvement is gross margins, which dropped in the first quarter to 22.9% from 23.3% in the fourth quarter. The company has vowed that increasing its profitability remains a priority. To that end, H-P pushed through job cuts totaling $60 million in the first quarter, and an additional $140 million in cuts are expected for the second quarter.

And despite any major announcements from the new CEO, the company isn't quite stagnating. On Monday, H-P announced a significant expansion of its storage portfolio and, last week, investors took as an endorsement of sorts



Carl Icahn's purchase of 104,000 shares of H-P sometime during the past 90 days.

For now, however, investors may have to make do with the lack of specifics. "We think it is too early to expect any major strategy announcements from H-P's new CEO," A.G. Edwards analyst David Wong says in a research note.

Wong expects that deeper cost cuts could be announced Tuesday and says that where the company is heading is the most important factor for investors. "Discussions by the CEO relating to strategy and implementing improvements in H-P's operations are more important than current results," Wong told clients.

That being the case, expect Hurd to set a strong tone Tuesday, while giving himself more time to narrow his plan of action. For the near term, though, it appears that H-P will be relying on hewing cost to shore up results.