Moody's cuts Hewlett-Packard ratings

Jonathan Stempel

NEW YORK: Moody's Investors Service cut its long-term debt ratings for
Hewlett-Packard Co. on Friday, saying the printer and computer giant will have
trouble maintaining its traditional, consistent level of profitability in the
future.

Hewlett-Packard, which dominates the market for inkjet and laser printers and
is the No 3 personal computer maker, has seen its earnings decline and is paring
its costs amid a broad downturn in technology spending.

Moody's cut Palo Alto, the Calif.-based Hewlett-Packard's senior unsecured
debt one notch to "Aa3," its fourth-highest investment grade, from
"Aa2." It cut the company's subordinated debt to "A1" from
"Aa3." It cut Hewlett-Packard Finance Corp.'s senior unsecured debt to
"Aa3" from "Aa2."

Moody's said its long-term rating outlook for the company, affecting about
$2.6 billion of debt, is "negative." It said it could cut its ratings
further if Hewlett-Packard's "execution of its wide-ranging reinvention
strategy shows signs of faltering."

The rating agency said it expects Hewlett-Packard to post "soft earnings
and revenue" in the near term because of a "dramatic worldwide demand
slowdown" for information technology products and services.

Hewlett-Packard spokeswoman Suzette Stephens said, "Moody's action is
consistent with our own guidance that we had given at our June 6 analyst
meeting, that we see an economic downturn spreading more deeply and widely
worldwide. HP can't improve the global economy alone."

At that meeting, Hewlett-Packard trimmed expectations for its third-quarter
performance for a second time in three weeks. Chief Executive Carly Fiorina said
she saw "weakness in all areas of our business in all of our
geographies."

The company, which in May reported a 66 per cent decline in fiscal
second-quarter profits, is more than halfway toward its goal of paring about $1
billion of operating costs by the end of 2002, according to Moody's. The new
Moody's senior unsecured debt rating roughly equals the "AA-minus"
rating assigned by another rating agency, Standard & Poor's. On Monday
S&P revised its outlook for Hewlett-Packard debt to "negative"
from "stable."

Stephens said Hewlett-Packard retains a strong balance sheet, with more than
$3 billion in cash, "which should help support our current ratings."
Shares of Hewlett-Packard were down 35 cents at $26.30 in afternoon trade on the
New York Stock Exchange. The shares are down 17 percent so far this year after
closing 2000 at $31.56.

(C) Reuters Limited 2001.