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HP Delivers

Somewhere out there an ode is being written to HP – and some lady investor is explaining to her husband about her abiding crush on HP’s CEO, the “Great Deliverer” – after HP dropped better-than-expected first-quarter results on Wall Street and upped its fiscal 2008 forecast despite all the defeatist talk of economic slowdown and a slightly more wide-awake Dell.

It’s been a long time since a tech stock ended up (close to 5%) in after-hours trading after the conference call.

HP’s Q1 profits were up 42% to $2.6 billion, or 80 cents a share, on revenues up 13% to $28.5 billion. Its operating margin rose from 7.3% to 9.2%.

On a non-GAAP basis its earnings were 86 cents when Wall Street only expected 81 cents on revenues of $27.6 billion. And HP only promised 80 cents on revenues of $27.5 billion.

HP came through in all its core businesses and all geographies. It is now collecting 69% of its revenues from outside the United States, where HP has seen some consumer faltering.

Revenues from the BRIC countries (Brazil, Russia, India and China) grew 35% year-over-year and accounted for 9% of HP’s total revenue.

Besides strong PC and server sales and its international side, HP chalked up its performance to cost savings and having 2,000 more salespeople than it used to even though CEO Mark Hurd says the company is still “dramatically under-covered” by more than 20% – in emerging markets and even the US.

The words they engrave on Hurd’s tombstone are likely to be, “There’s still more work to be done” – something he’s been saying since he got to HP – and he told Wall Street that he intends to do more cost-cutting this year than last, one of the reasons why he was able to raise HP’s forecasts, another being his diverse product line.

In a prepared statement he said, “We are raising our guidance yet again, reflecting our confidence in anticipated cost reductions and share gains in key markets. We added more than 2,000 sales positions in the past year through acquisitions and hiring. HP remains well positioned for profitable growth as we continue to focus on our numerous cost initiatives and improve our market coverage.”

Hurd is of the school that believes you manage your own destiny despite the macro-economy so HP figures it can clear $27.7 billion to $27.9 billion this quarter and return 77 cents-78 cents or 83 cents-84 cents (non-GAAP). He now estimates FY08 revenue will be approximately $113.5 billion to $114 billion, up from an earlier forecast of $111.5 billion, with earnings of $3.26-$3.30 or $3.50 to $3.54 (non-GAAP).

The company is expecting less favorable components costs this quarter than last, particularly in memory but also in panels.

In the quarter ended January 31, PC revenues were up 24% year-over-year to $10.8 billion, with unit shipments up 27%. Notebook revenues were up 37% and desktop revenues were up 15%. Commercial PC revenue was up 22% and consumer up 29%. Operating profit was $628 million, up an amazing 52% from $414 million.

Printer revenue was up 4% year-over-year to $7.3 billion, with supplies up 6%, Commercial hardware revenue grew 7% while consumer hardware revenue declined 5%. Unit shipments increased 1% with consumer hardware units down 2% and commercial units up 13%. Operating profit was $1.2 billion, up 9.1% from $1.1 billion.

Hurd confessed to leaving some ink jet business on the table – a couple of points worth, he said, without explaining how.

Enterprise Storage and Servers (ESS) reported revenues of $4.8 billion, up 9% year-over-year, which HP laid to blades, up a hefty 81%. Industry-standard server revenue increased 11%. Storage revenue was up 10%, with revenue growth of 14% in the mid-range. The company problem business critical systems revenue increased 1%, with Integrity systems growth of 37% offset by declines in PA-RISC and Alpha. Operating profit was $673 million, up 49% from $453 million.

Software revenue grew 11% year-over-year period to $666 million, led by 19% growth in HP’s Business Technology Optimization portfolio. Operating profit was $51 million, up from $18 million. HP wants to buy more data management and BI companies.

On a geographic basis, revenue in the Americas grew 8% to $11.2 billion, 15% to $12.3 billion in EMEA, and 22% to $4.9 billion in Asia Pacific.


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