HP has strong PC, software sales

HP reports a 27 per cent increase in operating profit, 13 per cent rise in revenue

Helped by double-digit sales growth in PCs and software from its Mercury Interactive acquisition, HP has reported a 27 per cent increase in operating profit on a 13 per cent rise in revenue in its fiscal second quarter financial results. But net profit slipped by 7 per cent from the same quarter last year.

HP reported net income of $US1.8 billion, or $US0.65 a share, on revenue of $US25.5 billion, for the three months that ended April 30, compared to net profit of $US1.9 billion, or $US0.66 a share on revenue of $US22.55 billion in the second quarter of 2006. Operating profit came in at $US2.1 billion.

Net profit from the same quarter last year was affected by a favourable tax ruling by the US Internal Revenue Service that added $US0.15 cents to HP's earnings per share.

Revenue for its Personal Systems Group rose 24 per cent to $US8.7 billion, including notebook computer sales growth of 45 per cent, for the most recent quarter reported.

The HP Software Group had revenue growth of 54 per cent to $US523 million. HP didn't own Mercury in the second quarter of last year.

HP had mixed results in its Enterprise Storage and Servers group. Overall segment revenue growth was 8 per cent, but industry standard servers growth was 17 per cent, led by blade server growth of 58 per cent. HP also reported 60 per cent growth in sales of servers based on the Integrity processors it co-developed with Intel Corp. But that growth was offset by declines in sales of servers running HP's Precision Architecture-Reduced Instruction Set Computing (PA-RISC) processors and servers with the Alpha processors developed by Digital Equipment, which HP obtained through acquisitions.

Storage revenue grew by only 1 per cent, as a 10 per cent increase in sales of HP's midrange EVA storage systems was offset by declines in higher-end storage arrays and in tape storage products.

While calling it a strong second quarter, HP CEO, chairman and president, Mark Hurd, said the pressure on cost-containment at the company would continue. "We're still transitioning and we are not close to being done."

Three months ago HP announced it would stop funding its defined benefit pension program for employees as of January 1, 2008, and would offer some workers an early retirement incentive.

HP chief financial officer, Cathie Lesjak, said 3000 HP employees had agreed to take the early retirement program and would leave HP by May 31. HP's global workforce, as reported in its annual report, is 156,000.

Hurd, on a conference call with stock analysts, declined to comment on published reports that rival, Dell, would start selling its desktop and notebook computers through the retail sales channel. Dell, which primarily sells through catalogues, phone orders or its website, fell behind HP in personal computer sales in 2006, according to IDC.

"They do what's best for their customers and we do what's best for our customers," Hurd said.

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Robert Mullins

IDG News Service
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