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HP Q3 Profits Rise On Strong Global Sales

In its first earnings report since ousting Mark Hurd as CEO, Hewlett-Packard reported that profits in its third fiscal quarter rose 6% on higher worldwide sales in its core computer businesses.
HP, the world's largest computer maker, reported that net income for the quarter ended July 31 was $1.8 billion, or 75 cents a share, up from $1.7 billion, or 69 cents a share, the same period a year go. However, when restructuring and acquisition-related charges and other impacts are excluded, then HP profits were $1.08 a share. Overall revenue increased 11% from a year ago to $30.7 billion.

In a conference call with financial analysts, Cathie Lesjack, who took over as interim CEO after Hurd's resignation, said HP was seeing a reversal in PC spending from a year ago, when consumers kept the industry afloat. This year, businesses were driving sales, offsetting some of the growth changes on the consumer side. "What we're seeing is a kind of pick up that's faster on the commercial side of the business," Lesjack said.

HP's earnings were in line with what the company forecast two weeks ago, when it predicted profits of about $1.08 a share on revenue of $30.3 billion. That prediction was higher than the company's forecast in May.

HP's released earnings almost two weeks after Hurd resigned following a company investigation into a sexual-harassment suit that found that Hurd had doctored expense reports to hide a relationship with an independent contractor who worked for HP. Jodie Fisher, the contractor who also filed the suit, later reached an out-of-court settlement with Hurd.

During Hurd's five years as CEO, HP became a lean company focused on cost control. The company's capitalization doubled and it embarked on major acquisitions, such as the purchase of 3Comm and Palm to push into new markets.

As the latest results show, the cost of the acquisitions, which were generally praised by analysts, continues to have an impact on profits. In addition, lower PC prices in the quarter contributed to a drop in operating margin to 7.6% from 8% a year ago.

However, overall sales of the company's PC business were up 12% in terms of shipments year over year, while revenue was up 17%. In a sign that businesses were buying replacement computers for older systems, commercial PC revenue was up 25%, or more than double consumer sales.

The performance of HP's enterprise storage and server business also reflected an increase in corporate spending on IT. Revenue for the division rose 19% from a year ago.

Looking ahead to the current fiscal quarter, HP forecast revenue of $32.5 billion to $32.7 billion, with profits in the range of $1.03 to $1.05 a share.

For Further Reading

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A 7-Step Plan For HP To Succeed in Mobile;

HP's Next CEO Should Throw Back EDS;

HP: My Day In The CEO Interview Hot Seat;

In Cutting Off Hurd, Is HP Spiting Its Face?;

Global CIO: Hewlett-Packard's New CEO: The Top 10 Challenges.