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.”

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