HP net rises, plans $6 bln buyback

By Philipp Gollner

SAN FRANCISCO: - Hewlett-Packard Co., the world's No. 2 personal computer maker, reported on Wednesday a forecast-beating profit on sales growth across its main divisions and unveiled a record $6 billion share buyback.

HP issued a forecast that topped analyst estimates and its shares rose nearly 6 percent in extended trading after closing up 1.3 percent at $34.43 on the New York Stock Exchange.

HP also announced plans to buy back as much of $6 billion of stock, the biggest in its history.

Led by Chief Executive Mark Hurd, HP has taken market share from rival Dell Inc., cutting costs while chipping away at Dell's traditional price advantage as industry prices decline. Hurd is eliminating 15,300 jobs, or 10 percent of the workforce, to save $1.9 billion annually.

"What this reflects is to some extent better cost-cutting and very much better executing," said Cindy Shaw, an analyst with Moors & Cabot Capital Markets, who has a "buy" rating on the stock. "They are on a roll."

HP cut about 1,900 jobs last quarter, bringing total reductions to about 10,000, and the rest should be cut this quarter, the company said.

Net income for the fiscal third quarter ended July 31 rose to $1.38 billion, or 48 cents per share, from $73 million, or 3 cents per share, a year earlier, when HP had a charge of almost $1 billion, mainly in taxes, for returning income earned abroad. Revenue rose 5.4 percent to $21.9 billion.

HP, based in Palo Alto, California, reported earnings per share of 52 cents per share, before special items, exceeding analysts' average forecast of 48 cents, as compiled by Reuters Estimates. Analysts had pegged revenue at $21.8 billion.

HP forecast fourth-quarter earnings per share of 61 cents to 63 cents before special items and revenue of $24.1 billion. Analysts, on average, have been forecasting earnings per share of 59 cents on that basis and revenue of $24 billion.

Hurd said competition in the PC market, cited by Dell as a reason for lowering its quarterly earnings forecast last month, was not "extraordinarily different" from past periods.

"We continue to see a competitive environment," Hurd told reporters on a conference call. "But I don't notice anything uniquely different in the competitive environment."

Revenue grew 5 percent to $6.2 billion in HP's imaging and printing division, which in the second quarter accounted for about a third of revenue and 52 percent of operating earnings.

Revenue in its personal systems group, which makes desktop and notebook computers and accounts for about a third of totalrevenue, rose 8 percent to $6.9 billion. The unit also posted a 4 percent gross profit margin, the best since 2002, HP said.

The enterprise storage and servers group, which includes server computers for business clients, saw revenue grow 3 percent to $4.1 billion, with server revenue up 6 percent.

HP shares trade at about 16 times estimated 2006 earnings per share, compared with a multiple of 19 at Dell.

HP has been gaining PC market share, especially in the United States, while Dell's share was little changed in the three months through June, according to estimates by market researcher IDC. HP has 20 percent of the U.S. PC market, compared with Dell's 34 percent.

Dell said in a preliminary earnings report in July that its profit fell short of its own forecast, while revenue growth was 4.3 percent, the slowest in more than three years. Dell blamed the profit shortfall on lower prices as it tries to boost growth.