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Leading analyst and top management from five sector firms examine the imaging technology sector in this special 23-page Imaging Technology issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info519.htm.

TWST: When would investors want to get involved with Hewlett-Packard (NYSE:HWP)?

Ms. Cross: We think that with the stock at approximately $18, you have limited your downside. We estimate that the printer business alone is worth $20 per share which obviously isn’t being fully reflected in the share price. Overall, we think that the deal will prove to be a positive for Hewlett-Packard, as it positions the company strongly in the server and PC markets and provides the printer business with further entrée into the Fortune 100. That being said, we do think longer term there is benefit to spinning out the printer business.

TWST: What approach would you advocate investors take to the group as a whole today?

Ms. Cross: I advocate underweighting the group at this point, with the exception of Pitney Bowes. The majority of the group is waiting for a cyclical recovery and is heavily reliant on the size of corporate IT budgets and adoption of color printing technology. I expect a lag factor between economic recovery and an increase in corporate IT spending. We estimate corporate IT budgets will increase 3% in 2002 versus 2001, which is not a significant increase, given the fact that 2001 was such a lousy year for IT spending. In addition, we expect that the adoption of color printing will even lag growth in corporate IT budgets. We believe that IT managers will replace outdated servers before they allocate dollars to discretionary purchases of color printing equipment. With this in mind, I would remain on the sidelines with the majority of the stocks and watch and wait. While I expect industry growth from the adoption of color printing technology, I’m not of the belief that we will each have color printing equipment sitting next to our computer, just as we all have color monitors. I think you’ll probably have a color printer that is shared among several people in order to keep costs down, as color printing costs more than black and white. Given the cost, I do not anticipate IT managers making a full-out switch, but I do think, longer term, color capabilities will be something that we’ll have within the office environment, just as we have color printing within the consumer environment through our inkjet printers that sit next to our home PCs.

TWST: What do you focus on in your recommendations?

Ms. Cross: There are a few key points that we focus on. First of all, we look at the strategy and how these companies are positioned for the future. Again, because we believe near-term growth will be weak due to the economy and high cost of color printing equipment, the longer-term strategies take on greater significance. Secondly, we look at the companies’ relative positions within the industry. For example, Hewlett-Packard’s printing business is a great example of a business that benefits from a substantial market share and very high mind share when it comes to both consumers and business purchasers choosing printers. Lexmark (NYSE:LXK) has managed to take share from Hewlett-Packard, because they found niche markets where they can do better than Hewlett-Packard. But I believe that Hewlett-Packard’s mind share within the consumer group and the corporate market is really key to its success in the printer business and its ability to retain leading market share.

This special issue includes:

1) Imaging Technology Stocks - In an in-depth (3,600 words) Analyst Interview, Shannon S. Cross, Director at Merrill Lynch Global Securities, examines the outlook for the sector including and shares specific stock recommendations.

2) CEO interviews (average 2,500 words). Top management of five sector firms examine the outlook for their firm and the sector.