HP Q3 revenue a pleasant surprise

Hewlett-Packard Co.'s third-quarter results received a boost from tax benefits, but the company also exceeded analysts' expectations for revenue on strong server sales growth.

Revenue was US$20.8 billion, up 10 percent from last year's third-quarter revenue of US$18.9 billion. Analysts surveyed by Thomson First Call had expected HP to record US$20.5 billion in revenue.

Net income based on generally accepted accounting principles (GAAP) was US$73 million, down 88 percent from last year when HP recorded US$586 million in GAAP net income. However, HP brought US$14.5 billion in foreign earnings back to the US to take advantage of a recently enacted tax break. That increased HP's net income by US$988 million to US$1.06 billion, or US$0.33 per share.

HP also recorded US$112 million in restructuring charges during the quarter to account for layoffs in its printing group. Late in the quarter, HP announced a much larger restructuring program that will put 14,500 employees out of work. The company will record a charge of around US$900 million in its fourth quarter to account for costs associated with those layoffs.

On an operating basis, HP's income increased in this year's third quarter compared to last year's. The company has the performance of its PC group and its server group to thank for that improvement, said Chief Executive Officer Mark Hurd on a conference call following HP's announcement.

Over the past few years, HP has had trouble delivering consistent profits and growth from its low-margin PC and server businesses. Most of the company's profits have come from its printer group, but that division actually saw profits slip in the third quarter.

The Imaging and Printing Group posted US$771 million in operating profits, compared to US$836 million in last year's third quarter. HP has been pricing its printers to increase its hardware shipments, and that strategy reduced operating profits, Hurd said. But increases in printer hardware shipments generally lead to increases in sales of printer supplies such as ink and paper, which are much more profitable than sales of the actual printers themselves.

Printer revenue grew only 1 percent compared to last year, but printer shipments were up 8 percent, HP said. Shipments of color laser printers and multifunction printers were up strongly at 31 percent and 67 percent, respectively.

The Personal Systems Group, which develops and sells PCs and handheld devices, improved its revenue by 8 percent over last year to US$6.4 billion in the quarter. Unit shipments increased by 14 percent, and the group's operating margin of 2.6 percent, although low by relative standards, was the group's best performance since HP acquired Compaq, Hurd said.

HP saw some of the same pricing pressure that affected the operating results of fellow PC makers Dell and Gateway, but that environment did not have as much of an effect on HP's results, Hurd said. Even before Hurd came to HP in April, the company had begun to downplay its market share competition with Dell and focus on making its PC business profitable.

Revenue from low-end servers increased 28 percent in the third quarter, leading HP's servers and storage group to US$4 billion in revenue, a 20 percent increase compared to last year. This group swung to a US$150 million operating profit in the quarter, up from a loss of US$211 million last year. Its operating margin was 3.8 percent of revenue.

The server group's performance this year was helped by the comparison to a horrible quarter last year, when a botched rollout of a new order processing system was responsible for lower-than expected revenue and led to the dismissal of three prominent sales executives.

HP expects fourth-quarter revenue to come in between US$22.4 billion and US$22.8 billion.

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.
Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Tom Krazit

IDG News Service
Show Comments

Most Popular Reviews

Latest Articles


PCW Evaluation Team

Tom Pope

Dynabook Portégé X30L-G

Ultimately this laptop has achieved everything I would hope for in a laptop for work, while fitting that into a form factor and weight that is remarkable.

Tom Sellers


This smart laptop was enjoyable to use and great to work on – creating content was super simple.

Lolita Wang


It really doesn’t get more “gaming laptop” than this.

Jack Jeffries


As the Maserati or BMW of laptops, it would fit perfectly in the hands of a professional needing firepower under the hood, sophistication and class on the surface, and gaming prowess (sports mode if you will) in between.

Taylor Carr


The MSI PS63 is an amazing laptop and I would definitely consider buying one in the future.

Christopher Low

Brother RJ-4230B

This small mobile printer is exactly what I need for invoicing and other jobs such as sending fellow tradesman details or step-by-step instructions that I can easily print off from my phone or the Web.

Featured Content

Product Launch Showcase

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?