HP Shows Strength In Core Businesses, Raises Full-Year Forecast

Revenue from the company's personal systems group grew by 24% from a year ago, with notebook sales up 37% and desktop revenue up 15%.

Antone Gonsalves, Contributor

February 20, 2008

3 Min Read

Hewlett-Packard on Tuesday reported strong profits in the first fiscal quarter on higher revenue across its core businesses of PCs, servers, and printers, showing significant strength against rivals and positioning the company for further investment in other markets.

The tech company reported a 38% jump in net income for the quarter ended Jan. 31 to $2.13 billion, or 80 cents a share, from $1.55 billion, or 55 cents a share, for the same period a year ago. Revenue for the quarter rose 13% to $28.5 billion.

HP raised its guidance for the year, "reflecting our confidence in anticipated cost reductions and share gains in key markets," Mark Hurd, chairman and chief executive for HP, said in a statement. "HP remains well positioned for profitable growth as we continue to focus on our numerous cost initiatives and improve our market coverage."

In after-hours trading Tuesday, HP's guidance boost lifted its stock price $2.24, or more than 5%, to $46.19.

Revenue from the company's personal systems group, which includes consumer and business PCs, grew by 24% from a year ago to $10.8 billion, with unit shipments up 27%. Notebook sales increased 37%, while desktop revenue was up 15%.

HP's imaging and printing group, the company's most profitable business, saw a 4% year-over-year growth in revenue to $7.3 billion. The enterprise storage and servers unit reported a 9% increase in revenue to $4.8 billion.

Operating profit for HP's software business nearly tripled as revenue increased 11% from a year ago to $666 million. Helping to boost software profits and sales was the $1.6 billion acquisition last July of data center automation specialist Opsware.

In a conference call, Hurd told financial analysts that the company's profits were driven by a combination of higher sales and cost cutting. "Let me be clear, our cost savings are significant and ongoing," he said, adding that the company intended to "wring out more cost" through the rest of the fiscal year.

Among its biggest expense-cutting projects was the consolidation of the company's data center, an effort that was expected to eventually reduce IT costs by $1 billion. As an example of the project's success, HP to date has reduced the number of business applications it runs to 3,000 from 6,000 in 2005, according to Hurd.

HP's focus on reducing expenses is important in either increasing profit margins or using the money saved to reduce prices against Dell and other competitors, David Cearley, an analyst for Gartner, said.

"HP is showing a very strong core business in devices (PCs, servers, printers) across geographies and across markets, from consumers and small businesses to the enterprise," Cearley said. "Their traditional device businesses are showing significant strength against their competitors."

If HP's core businesses continue to thrive, then the company would have the money it needs to pursue its goal of expanding its software and services businesses. "HP today is a device company with software and services capabilities," Cearley said. "The question is whether HP can rebalance that portfolio over the years to have a stronger software and services business relative to its traditional device business."

HP estimates revenue in its second fiscal quarter will range from $27.7 billion to $27.9 billion. Earnings are expected to be 83 cents to 84 cents a share. For the full fiscal year, HP predicts revenue from $113.5 billion to $114 billion, with earnings per share from $3.50 to $3.54. The company in November had predicted earnings of $3.32 to $3.37 on revenue of about $111.5 billion.

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