GOVERNMENT

PALO ALTO, CA -- Hewlett-Packard Company (NYSE:HWP) today reported financial results for its third fiscal quarter ended July 31, 2001. The company reported third quarter revenue of $10.1 billion, compared to $11.8 billion in last year's third quarter, a decrease of 14% as reported (10% before the effects of foreign currency). Pro forma earnings per share (EPS) on a diluted basis from continuing operations was 11 cents, compared to pro forma EPS on the same basis of 50 cents in the prior-year period. Pro forma earnings this quarter excluded $49 million of amortization of goodwill and other intangibles, as well as a $131 million non-recurring pre-tax loss from the sale of VeriFone. Actual EPS on a diluted basis was 5 cents per share on approximately 2 billion shares of common stock and equivalents outstanding. This is before a 1 cent extraordinary gain on extinguished debt. Diluted EPS from continuing operations for the same period last year was 50 cents. HP's overall gross margin was 25.9%, up from 25.3% last quarter. Expenses were down 5% sequentially on a pro forma basis. "We are managing through what is clearly a significant global economic downturn -- and our results reflect this tough environment," said Carly Fiorina, chairman and chief executive officer. "However, we are seeing positive signs that our efforts to transform our business and improve our execution are gaining traction, and we continue to make strategic moves to fuel growth. "We are effectively controlling short-term expenses thanks to the efforts of HP employees, and continuing to manage our inventory down. We're also taking decisive actions to create market-leading cost structures and improve our ability to respond to rapidly changing market conditions. "In the enterprise channel we're receiving positive customer and partner feedback to our 'hard deck' sales engagement program. While we have more work to do, we are without question seeing a higher level of channel interest and engagement with HP. "We are also continuing to take important strategic steps to build our business. Recently we announced plans to acquire Comdisco's Continuity Business, StorageApps and Trinagy Inc. -- all in growth areas we've targeted for investment. At the same time, we're divesting non-strategic assets, having completed the sale of VeriFone in the quarter." HP's consumer business was particularly hard hit by the global economic malaise, with revenues down 21% year over year, against a very tough compare. Despite these difficult market conditions, HP's consumer business continues to be profitable, maintaining or gaining share in almost every category. HP also retained its No. 1 worldwide home PC position, showing strong growth in Europe with a 67% increase in revenue compared to a year ago, and moving into the No. 2 market position in consumer notebooks worldwide. Overall revenues in HP's business sector declined 11% year over year and 8% sequentially. However, HP Superdome servers, HP's high-end UNIX offering, continued to experience solid revenue growth signaling the company's solutions selling approach is gaining momentum. HP's consulting, outsourcing and support businesses posted revenue growth which outpaced competitors. "Simply stated, we're staying focused on our strategy, resolutely managing our way through this economic downturn, and improving our execution so that we emerge a stronger, more focused competitor whenever the economy rebounds," said Fiorina. "Looking forward, while market conditions remain far too dynamic to predict outcomes, we expect to see some sequential revenue growth in Q4 due to seasonal effects with gross margins and expenses essentially flat on a sequential basis." For further information visit www.hp.com