HP reports strong results on PC, enterprise sales

Hewlett-Packard reported solid financial results for its fiscal first quarter, driven by growth in PCs and enterprise hardware. The results prompted HP to raise its forecast for the year ahead.
Revenue for the quarter, which ended Jan. 31, was $28.5 billion, up 13 percent from a year earlier, HP announced Tuesday. Pro forma net income was $2.3 billion, or $0.86 per share, up from $1.8 billion, or $0.65 per share, a year earlier.

The figures beat the expectations of financial analysts, who had forecast revenue of $27.6 billion and pro forma earnings per share of $0.81, according to Thomson Financial. The pro forma figure excludes one-time items that slightly inflated the results. Using generally accepted accounting principles, HP's profit was $2.1 billion, or $0.80 per share.

HP's Personal Systems Group, which produces its laptop and desktop PCs, grew its revenue 24 percent from the same period a year earlier, to $10.8 billion, with unit shipments up 27 percent. Notebook sales climbed fastest, up 37 percent, while desktop sales climbed 15 percent.

The division had already been doing well. HP extended its lead over Dell in PC sales last year, according to figures from Gartner. HP ended the year with 18.2 percent of the market, compared with 14.3 percent for Dell. The PC market overall grew 13.4 percent.

HP may find it hard to sustain that growth rate, in part because it has to make comparisons with increasingly successful quarters in the year before, CEO Mark Hurd said on a conference call. Still, Hurd said, "when you look at 24 percent growth, I think that's pretty darned strong."

HP's imaging and printing group performed slightly less well, with revenue climbing 4 percent to $7.3 billion. Printer unit sales declined by 1 percent from a year earlier, thanks to weakness in the consumer market. Revenue from supplies, which includes HP's profitable ink business, climbed 6 percent, however.

Revenue from the servers and storage group climbed 9 percent to $4.8 billion. Sales of blades and industry-standard servers were strong, while HP's PA-RISC and Alpha chip businesses continued to shrink. Services revenue climbed 11 percent year-over-year to $4.4 billion, while software sales climbed 11 percent to $666 million, HP said.

Hurd said he was pleased with the results overall. He attributed them to successful cost-cutting efforts, the addition of 2,000 new HP sales staff in the past year, and a diverse product portfolio.

HP generates an increasing amount of its business overseas, he said. Its biggest market continued to be Europe, the Middle East and Africa, where revenue grew 15 percent to $12.3 billion. Asia-Pacific revenue climbed 22 percent to $4.9 billion. Growth in the Americas was a sluggish 8 percent, generating $11.2 billion.

"We generated 69 percent of our revenue outside the U.S., with emerging markets driving significant growth," Hurd said.

HP is about halfway through a project to consolidate its own applications and IT systems, said Chief Financial Officer Cathie Lesjak. The goal is to cut $1 billion per year in IT expenses starting in fiscal 2009. HP is also trying to sell the same process to customers.

"It starts with business process changes, then we do application modernization, then that allows us to consolidate infrastructure and close data centers," he said.

So far the company has consolidated 6,000 applications worldwide down to about 3,000, he said. HP used to have 75 customer service applications, for example -- one for each of its major countries -- and it now has just one. That allows the company to make a change to the application once and push it out worldwide, which makes HP "more nimble," he said.

One slight cloud on the horizon may be component prices. "We're thinking about the fact that memory will be a bit tougher than in the past couple of quarters," Lesjak said. "LCD prices as well have started to tick up a bit."

HP also has a significant shortage of sales people, Hurd said. "We have 144,000 resellers and partners, but at the end of the day ... we are dramatically undercovered, and we're not off by 10 or 20 percent, we're off by more than that," he said.

The company now expects second-quarter revenue of $27.7 billion to $27.9 billion, and pro forma earnings per share of $0.83 or $0.84. That's above what analysts polled by Thomson had been estimating: pro forma profit of $0.82 and revenue of $27.4 billion.

Investors applauded the results. HP's shares were trading 5 percent higher in after-hours trading, at $46.12 at the time of this report. They ended the regular day's trading at $43.95, level with Friday's close. (Monday was a national holiday in the U.S.)