HP's Profits Soar Amid Fierce Competition - InformationWeek

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HP's Profits Soar Amid Fierce Competition

Net earnings for the quarter ended April 30 were up 34% to $884 million, but Wall Street is still wary about the company''s future performance.

SAN JOSE, Calif. (AP) -- Hewlett-Packard Co.'s quarterly earnings jumped 34 percent and matched Wall Street expectations Tuesday, but analysts remained cautious about the computer maker's long-term outlook amid fierce competition from rivals.

For the three months ended April 30, HP reported a profit of $884 million, or 29 cents per share, compared with $659 million, or 22 cents per share, in the same period last year.

Excluding special items, HP earned $1.03 billion, or 34 cents per share. That compared with $877 million, or 29 cents per share, in the same period a year earlier.

Analysts expected the company to earn 34 cents per share, according to a survey by Thomson First Call.

Second-quarter 2004 revenue was a record $20.1 billion, up 12 percent from $18 billion in the second quarter of 2003.

Carly Fiorina, HP's chairman and chief executive, characterized the second quarter as "strong," crediting record sales of personal computers, computer hardware to corporate customers, and the Palo Alto, Calif.-based company's continued dominance in printers, ink, and other imaging products.

"These results demonstrate that we are winning and growing across the portfolio in an intensely competitive market," Fiorina said.

Although revenue growth in personal computers has outstripped that of rival Dell Inc. in recent quarters, Wall Street veterans sounded notes of caution about HP's earnings report. Most analysts polled by Thomson First Call rated HP stock a "hold," and share performance lagged that of HP's fiercest rivals, Dell and IBM Corp.

"Locked in a seemingly endless struggle with Dell, HP apparently cannot match their competitors' flexibility ... and capacity to ride component pricing trends," technology analyst Mark D. Stahlman, managing director of Caris & Co., wrote in a report this week. "At the same time, Dell's commitment to squeeze HP's bedrock printer franchise is also likely to be a concern."

HP's price-to-earnings ratio, a critical measure of Wall Street's long-term enthusiasm for a company, is about 22 times estimated earnings--about the same as the ratio for the S&P 500 Index. But it trails the ratios of many tech bellwethers: Dell's ratio is 32, and Microsoft Corp.'s is 30. IBM's is 19, while eBay Inc.--one of the highest performing tech stocks since the collapse of the stock market in spring 2000, has a ratio of 96.

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