HP reports solid quarter on strong PC and server sales

Sales of industry standard servers jumped 54 percent, though services grew just 2 percent

Hewlett-Packard reported solid results for its second quarter as strong growth in PC and x86 server sales helped offset an unremarkable quarter for its services business.

HP's revenue for the quarter ended April 30 was US$30.8 billion, up 13 percent from a year earlier and ahead of the consensus estimate from Wall Street analysts, according to a poll by Thomson Reuters.

Net earnings were $2.2 billion, or $0.91 per share, each up 28 percent from a year earlier. Excluding acquisition fees and other one-time charges, earnings were $1.09 per share, 4 cents ahead of what Wall Street had expected.

The revenue figure was inflated 4 percent by favorable currency conditions, but HP still performed well in every geographic region, Chairman and CEO Mark Hurd said in a statement. Adjusted for currency, revenue was up 9 percent in the Americas, 7 percent in Europe and 10 percent in Asia Pacific, HP said.

Desktop PC sales climbed 27 percent and notebook sales 17 percent, bringing overall growth of 21 percent for HP's Personal Systems Group, where revenue was $10 billion.

Revenue from industry standard servers jumped 54 percent, blade revenue was up 45 percent and storage revenue increased 16 percent, HP said. Sales of its Business Critical Systems, which include Itanium servers running HP-UX, continued their decline, falling 17 percent from last year. But overall, revenue from the Enterprise Storage and Servers group climbed 31 percent to $4.5 billion.

HP's giant services division was a weak spot, growing just 2 percent to $8.7 billion. Outsourcing revenue increased 6 percent, but revenue from Technology Services and Business Process Outsourcing was roughly flat year over year. Application Services revenue was down 2 percent.

HP's Printing and Imaging Group saw revenue increase 8 percent, to $6.4 billion, while software sales declined 1 percent to $871 million.

The company raised its earnings guidance for the full year, to between $4.45 and $4.50 per share, up from $4.37 to $4.44 per share. Its acquisition of Palm will result in additional costs, however, so HP lowered the earnings estimate when one-time charges are factored in, to between $3.76 and $3.81 per share. It expects revenue for the full year to grow between 8 and 9 percent.

The results compare well with those of IBM, which has a similarly broad product portfolio. IBM reported a 13 percent increase in quarterly profits last month, to $2.6 billion, on revenue that climbed 5 percent to $22.9 billion. It too saw strong gains from industry standard servers and a relatively modest increase from services.

It's been a busy time for HP. On April 12 it closed its acquisition of 3Com for $2.7 billion, a deal that will allow it to offer more tightly woven server and networking systems and help fend off emerging competition from Cisco Systems.

Two weeks later HP announced plans to buy Palm for $1.2 billion. It hopes to turn around Palm's struggling handset businesses and use the Palm Web OS to make a play for the emerging tablet computer market.

HP has also been paying out for a botched services deal that EDS had with BritishSkyBroadcasting before HP bought the IT services firm two years ago. In March, HP had to cut the earnings it had reported for the first quarter by $73 million after a U.K. court ordered additional payments. HP has had to pay out about £270 million, or US$389 million, on the case so far this year.

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James Niccolai

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