HP profit climbs 27%

Duncan Martell

SAN FRANCISCO: Hewlett-Packard Co. reported quarterly profit rose 27 percent as the computer and printer maker saw record revenues in every business and every region and fixed problems with its server and storage unit, sending shares higher by 8 percent.

The No. 2 computer maker also backed analyst estimates for the first half of the company's 2005 fiscal year and Chief Executive Carly Fiorina said corporate demand strengthened and consumer demand moderated somewhat.

"At this juncture what we are seeing is an improving enterprise market and a so-so consumer market," Fiorina said on a conference call.

HP rivals Dell Inc., the largest PC maker, and International Business Machines Corp., the No. 1 computer maker, also both recently posted strong quarterly results, suggesting that technology spending may not be as middling as many have feared.

The shares rose as investors were surprised by the results and relieved that they had not missed its target again.

"The Street was very skeptical that Hewlett-Packard could even hit their revenue numbers," said Steve Neimeth, portfolio manager for AIG SunAmerica Mutual Funds, who oversees mutual funds owning 500,000 Hewlett-Packard shares. "Sentiment for this company has been extremely negative. The Street has been skeptical of Carly Fiorina. But she's proven once again that she can hit numbers."

HP said net income for its fiscal fourth quarter ended Oct. 31 rose to $1.09 billion, or 37 cents per share, up from $862 million, or 28 cents per share, a year earlier. Revenue rose 8 percent to $21.4 billion.

Excluding items, Palo Alto, California-based HP posted a profit of 41 cents per share, compared with its previous forecast for a per-share profit of 35 cents to 39 cents.

On that basis, analysts had expected a profit of 37 cents per share, on average, within a range of 34 cents to 39 cents, on revenue of $21.2 billion, according to Reuters Estimates.

'ISSUE IS BEHIND US'

The enterprise storage and server unit had an operating profit of $107 million, a rise of $315 million from the operating loss of $208 million in the prior quarter.

HP's third-quarter results had been well below forecasts, due to problems with installing a major software program from SAP AG and with managing channel inventories in Europe, and it also lowered expectations for the fourth quarter.

"This issue is now behind us," Fiorina said, referring to the problems that hobbled it in the prior quarter. She said HP shipped a record number of standard Intel servers during the period, with unit shipments rising 18 percent.

Consistency will be key going forward for HP, which previously has posted strong quarterly results, only to undermine confidence by following up the next quarter with results below expectations, said Shawn Campbell, principal of Campbell Asset Management, which owns HP shares.

"They really need to get a couple of quarters under their belt where they're meeting expectations and providing a little upside before the stock really regains some traction and investors gain a little more confidence in the company," Campbell said.

Fiorina said on a conference call with reporters that HP would accelerate cost cuts for its servers and storage group, making reductions in fiscal 2005, which began on Nov. 1, that had been planned for fiscal 2006.

For the first half of fiscal 2005, the company said it sees earnings per share before items of 72 cents to 74 cents and revenue of $41.8 billion to $42.3 billion.

Analysts currently forecast a first-half HP profit of 72 cents per share, on average, on revenue of $41.9 billion.

In after-hours trade, the stock rose to $21.20 on Inet from a close of $19.68 on the New York Stock Exchange.

So far this year, the stock has declined by about 15 percent, compared with an increase of less than 1 percent in the Dow Jones Industrial Average, of which HP is a component.

(With additional reporting by Eric Auchard and Megan Davies in New York)