HP profit jumps 28%

By John Boudreau (Mercury News)


Hewlett-Packard, the world's leading computer maker, reported a 28 percent spike in profit for the most recent quarter as sales of laptops rose nearly 50 percent and international business soared.

The Palo Alto-based computer and printer company reported earnings of $2.2 billion, or 81 cents a share, compared with earnings of $1.7 billion, or 60 cents a share for the same period a year ago.

HP's computer division had a 30 percent revenue jump to $10.1 billion for the quarter ending Oct. 31. Shipments were up 31 percent. Meanwhile, HP's software business doubled in revenue, reaching $698 million. Software sales got a boost from the company's acquisitions, including Mercury Interactive.

For the fiscal year, the company reported revenue of $104.3 billion, a 14 percent jump from the previous year and the first time HP has racked up $100 billion in annual sales.

"We had a strong quarter characterized by double-digit growth across all our regions," HP Chairman and Chief Executive Mark Hurd said in a conference call with analysts. "We did this while continuing to make progress on our cost structure. I am confident we can continue to execute with discipline and produce another year of strong financial returns."

As fears of an economic slowdown spooked the markets, analysts probed Hurd about his economic forecast. While declining the role of economist, the CEO of the world's largest information technology products company eased some concerns with an upbeat fiscal 2008 guidance.

The company predicts earnings, excluding one-time charges, of 80 cents a share in the first quarter, which is 3 cents higher than what analysts had forecast. HP expects sales of $27.4 billion to $27.5 billion, also higher than the $27 billion analysts were expecting. The company expects revenue for fiscal year 2008 to be $111.5 billion.

Hewlett-Packard also announced it was setting aside an additional $8 billion for share repurchases, indicating the company believes its share to be undervalued.

Overall, analysts viewed the company's financial snapshot as a hopeful sign, particularly after Cisco Systems reported weak sales to U.S. corporations a week and a half ago.

"Obviously, the concern that the IT spending environment would come to a screeching halt is alleviated," said Pacific Crest Securities analyst Brent Bracelin. "HP is the largest IT supplier in the world and its comments are that things are healthy and spending continues to be healthy."

Hewlett-Packard, though, is not as reliant on the U.S. market as other tech companies. For the fourth quarter, the company reported that nearly 70 percent of its revenue came from overseas.

"They are the most global company among large hardware companies," observed American Technology Research analyst Shaw Wu. "Being more international is an advantage these days."

While the PC sales were impressive, HP's Imaging and Printing Group represented 42 percent of the company's $2.63 billion in operating profit for the fourth quarter, almost twice that of the Personal Systems Group, which includes PCs.

"Their performance in the last three years has been two-pronged," said Michael Cuggino, president of Permanent Portfolio Fund in San Francisco, who overseas $1.5 billion in investments, including shares of Hewlett-Packard. "On the one hand, they are reducing excess costs and infrastructure. HP was a bloated organization for a while. At the same time, they've been growing revenue and gaining market share. When you look at PCs and services, they've been doing a great job."

Still, Hewlett-Packard will continue to face multiple battles with giants like IBM and Dell, which is "having a midlife crisis," Cuggino said.

Cost-cutting can take a company only so far, he added.

"The real challenge going forward is going to be less about streamlining operations and more about achieving sustained revenue growth in the face of pretty tough competition."

Shares of HP were up 83 cents, or 1.7 percent, to $50.27 in after hours trading.