RealTime IT News

HP Looks to Continue 'Transformation'

HP reported a bang up quarter today, with sales of $25.1 billion, or some $800 million ahead of forecasts.

For its first fiscal quarter of 2007, HP  reported net revenue of $25.1 billion, a jump of 11 percent year-over-year, or seven percent when adjusted for the effects of currency. Net income of $1.55 billion compares favorably with the $1.23 billion reported over the same quarter last year. For the second quarter, HP CEO Mark Hurd is projecting $24.5 billion in revenue, higher than earlier estimates of $24.1 billion.

Gartner analyst Martin Reynolds said by his estimation, this quarter's results represent the first time HP's revenue exceeded that of HP and Compaq combined before the two merged in 2002. He called it a sign of the controversial merger's success. While its PC desktop revenue was down one percent in the quarter, HP reported a big jump in its notebook business, up 40 percent over the same period a year ago.

In a conference call with analysts, CEO Hurd repeatedly praised his company's "solid" results, while also emphasizing more work remained. He also addressed some of the computer and printer giant's challenges.

"We know we have a lot of work ahead of us. We are transforming, we're not transformed," said Hurd. HP needs to continue investing in new technology and do a better job in inventory management, Hurd added.

One area of work is in enterprise sales. Hurd said high-end server sales were the only "blemish" on HP's quarterly results. Storage sales were also down, but Hurd said the biggest drop was in older tape storage, which was offset by stronger sales of its midrange Enterprise Virtual Array storage systems.

Reynolds told internetnews.com that although high end, so-called business critical systems, aren't a fast growing market, they're a large and important one. "HP's Itanium servers are a pretty good product that should be doing better," said Reynolds. He noted that HP faces strong competition from IBM's Power line and a resurgent Sun Microsystems .

HP's bread and butter printer business continues to do well. Revenue in HP's imaging and printing business increased seven percent to $7.0 billion for the quarter. Hurd was asked about Kodak's  plans to release higher priced inkjet printers with less costly ink cartridges, next month.

Hurd laughed at the idea of higher prices in the cutthroat printer market. "It's an interesting concept," said Hurd. "We hope hardware prices go up, we'd be glad to participate in that."

But Reynolds said any price war over ink cartridges would hurt one of HP's main profit centers. "HP doesn't want a price war on ink because that becomes a profit war," said Reynolds. "So far the cartridge re-fillers have had an impact, but it hasn't been devastating."

Despite its success, HP is also doing a little proactive people management. Hurd announced the company is freezing further contributions to its defined benefit plan for U.S. employees at the end of this year.

Starting in 2008, HP said it will increase the employer match of its 401k program from the current four percent up to six percent. The company is also offering an early retirement package it hopes will lop about 3,000 positions off the payroll.

Successful or not, "freezing benefits and reducing pension plans is just part of the modern world," said Reynolds. "You used to be able to get a job for life, but those days have passed us. HP is just bringing its costs in line and consistent with the rest of the industry."