Thursday, May 17, 2007

HP revenue beats forecasts (Mercury News)

By Therese Poletti

Sales of personal computers, notebooks and commodity servers fueled strong fiscal second-quarter revenue growth at Hewlett-Packard, and the tech giant said Wednesday it is now on target to reach $100 billion in annual revenue this year, sooner than analysts had expected.

Part of that revenue forecast was fueled by the quarter's 13 percent jump in revenue - 10 percent if accounting for currency effects - to $25.5 billion, up from $22.6 billion a year ago. Revenue and earnings for the quarter ended April 30 were on target with HP's upside surprise that it announced last week.

Net income was down 7 percent to $1.8 billion, or 65 cents a share, from $1.9 billion, or 66 cents a share, due to restructuring charges.

"HP delivered a strong second quarter," Chairman and Chief Executive Mark Hurd told analysts on a conference call. "This represents our highest growth rates since 2000."

But Hurd also continued his mantra that the work at the Palo Alto computer and printer company is still not done and HP has room to cut more costs.

"HP is still transforming," Hurd told reporters on another call. "Our overhead costs still are too high and need to be reduced. In that respect, we are not even close to being done."

Hurd declined to be more specific on how much in costs he believes can be cut or saved, but he added that HP's overhead costs will decline more in the next two fiscal years than they did from fiscal 2005 to fiscal 2006. In July 2005, he unveiled a big restructuring that included 14,500 job cuts, but Hurd said job cuts are only a part of the strategy.
"It would be a misinterpretation to extrapolate to pure head count," Hurd told the Mercury News in a brief phone interview. He said those overhead costs include HP's information technology systems, real estate and corporate support functions. HP is involved in an ongoing project to consolidate and reduce its total number of data centers and real estate facilities.

Chief Financial Officer Cathie Lesjak said HP just completed one early retirement program, and that 3,000 employees took the package. Those workers will leave HP by May 31. HP did not disclose how many of those workers are in the Bay Area.

HP also froze its U.S. pension plan, a growing trend among many U.S. companies. The freezing of the company's pension plan resulted in a $500 million gain. HP had a $400 million restructuring charge in the quarter because of its early retirement plan.

In after-hours trading, HP shares rose slightly, even though Wall Street was already anticipating much of the news. HP shares were up 46 cents to $45.21, or 1.03 percent. A year ago, HP shares were trading around $31 to $32.

"With steadily improving earnings power ... we expect the shares to outperform the peer group," Bill Shope, an analyst with JP Morgan, wrote in a note to clients.

Bright spots in the quarter included total sales in the PC business of $8.7 billion, up 24 percent, while notebooks soared 45 percent and desktops grew 9 percent.

Imaging and printing revenue was up 7 percent to $7.2 billion, with HP's most profitable business, supplies, up 10 percent.

Computer servers were mixed but, overall, enterprise storage and servers grew 8 percent to $4.6 billion, with servers based on chips from Intel and Advanced Micro Devices climbing 17 percent, and blades for server racks jumping 58 percent.

Software revenue grew 58 percent to $523 million, including sales from Mercury Interactive, which HP acquired last year.

Last week, HP discovered that an internal e-mail was sent to someone outside the company. The e-mail contained enough data about HP's upcoming financial report to make executives nervous about full-disclosure laws. HP then decided to pre-release the better-than-expected second-quarter results.

"We sure wish that hadn't happened," Hurd told reporters. "We had an employee who made an inadvertent mistake. The good news is that the employee told us right away. It was a simple mistake."

On Wednesday, HP forecast fiscal third-quarter revenue in the range of $23.7 billion to $23.9 billion and earnings per share of 64 cents to 65 cents. Fiscal 2007 revenue will range from $100.5 billion to $100.9 billion. Analysts had been projecting HP to surpass $100 billion in revenue in fiscal 2008.

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