RealTime IT News

HP's Cost-Cuts Drive Profit

Hewlett-Packard  saw profits surge in a solid third quarter earnings report that showed the computing and printer giant's restructuring efforts under CEO Mark Hurd are paying off.

For the quarter ended July 31, HP's profit was $1.38 billion (48 cents per share), compared to $73 million (.03 cents per share) in the same time last year.

However, accounting changes factored into the net income. The results (even with one-time accounting changes factored out) met analysts' expectations of 47 cents per share.

Hurd said HP is very pleased with its growth in the enterprise where sales of its enterprise storage and servers (ESS) division hit $4.1 billion, up 3 percent from the same quarter last year.

"We feel pretty good about where our enterprise business is headed and it's reflected in the numbers," Hurd said in a call with analysts today.

Asked about areas of weakness, Hurd conceded that older technology like tape storage and proprietary Unix weren't growing.

Overall though, revenue was up 5 percent to $21.9 billion, or 6 percent over the same time last year if you factor in currency differences. Analysts were expecting between 4 percent and 6 percent growth.

The company also announced a plan to buy back $6 billion worth of its stock, which is considered the largest buyback in its history.

Major business units hit their marks. The personal systems group, which includes the PC unit, grew revenue by 8 percent to hit $6.9 billion. Unit shipments were up by 14 percent and on a year-over-year basis, desktop revenue grew by 5 percent while notebook revenue climbed by 14 percent.

HP's gains on the server side and in consumer desktops has been aided by its early adoption of AMD chips. By supporting both AMD and Intel, HP has been able to offer customers a wider choice of price performance alternatives than competitors.

Now other companies are adopting the same strategy. IBM recently announced plans to expand its portfolio of AMD-based systems and long time holdout Dell said it would release AMD-based servers later this year.

But Hurd said he isn't worried about losing any competitive edge.

We think competition is good," said Hurd. "We actually think more adoption is a good thing on a macro basis."

Imaging and printing, which pulls in the lion's share of HP's profits, grew by 5 percent to hit $6.2 billion for the quarter. Printer unit shipments jumped by 15 percent.

All-in-one printers jumped by 17 percent and laser printer shipments jumped by 70 percent year-over-year.

HP upped its fourth quarter sales expectations to $24.1 billion and full-year earnings per share estimates (GAAP diluted) to be in the range of $2.14 to $2.16.

Shares of HP were headed up by 5.43 percent to $36.30 in after hours trading.

Hurd wouldn't rule out future acquisitions, but said the company wouldn't do anything to try and gain market share "just to gain share. We're going to do things that make sense. Businesses where we can get long term market expansion is where you'll see us invest."

The solid results, and improved outlook for the full year, comes one day before Dell  releases its earnings and on the heels of news that it would voluntarily recall 4.1 million notebook computer batteries which could catch on fire due to overheating.

Dell has already lowered its sales expectations for the quarter to $14 billion in sales on and earnings per share of 21 cents to 23 cents.