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Laptops and Desktops Give HP Its Props

HP started out its financial year on a high note, citing strong demand for its client and enterprise products.

The Palo Alto, Calif.-based computer and printer maker stayed consistent with the guidance it doled out earlier this month. The company reported fiscal first quarter revenue of $19.5 billion and earnings of 35 cents per share, which is a six-cent improvement from a year ago.

"HP delivered a solid quarter," HP chairman and CEO Carly Fiorina said in a statement. "In a seasonally weak period, we demonstrated HP's earnings potential with our most balanced profit performance since the merger. In Personal Systems we grew revenue in both desktops and notebooks almost twice as fast as our nearest competitor for the second quarter in a row, achieved the No. 1 market share position worldwide and generated record profits."

Imaging and printing ($5.9 billion combined) continue to be the company's bread and butter, but HP attributed most of its recent success to notebook growth (52 percent year-over-year). The company said its notebook revenue increased 42 percent, desktop revenue increased 11 percent with improving average selling prices and handheld revenue grew 25 percent.

In the enterprise, HP said its key hardware business was strengthened by strategic investments and acquisitions to its "Adaptive Enterprise" virtualization and provisioning software portfolio. Software revenue grew 9 percent year-over-year to a new first-quarter record, with HP OpenView up 9 percent and HP OpenCall up 11 percent.

While sales of the company's UNIX servers dipped, reflecting intense pricing pressure, particularly at both ends of the pricing spectrum, HP said its x86 server market share increased to almost 33 percent. The company is at a crossroads, however, as it pledged support this week for Intel's forthcoming 64-bit extensions but continues to monitor sales of AMD's 64-bit Opteron server chip. HP said momentum in Superdome continued, with unit orders up 52 percent year-over-year. Storage growth in HP's high-end and midrange arrays also made gains, led by strong customer acceptance of the midrange HP StorageWorks Enterprise Virtual Array. This was offset by weakness in the high end and a 5 percent decline in the tape business, reflecting HP's decision to exit the OEM library business. Total storage revenue declined 2 percent year-over-year, the company reported.

Of particular note, HP Services and HP Financial looked a little down in the tooth, losing 11.4 percent and 15 percent of their respective revenue streams from a year ago. The company ascribed the loss to the lengthening of customer procurement cycles, intensified pricing pressures, continued weakness in consulting and integration revenues and utilization rates, as well as the initial investments associated with some of the large managed services deals won in the past 12 months.

"We expect our operating margin performance to improve throughout the year as we continue to reduce our cost structure," Fiorina said.

As for the next three months, HP predicted its revenues would hover between $19.2 billion and $19.6 billion. The company also said it expects earnings per share to reach 34 cents.



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