HP reports mixed quarter on weak PC sales

Servers and network gear did well, but HP's PC and services groups fared poorly

Hewlett-Packard on Tuesday reported strong profits for its first fiscal quarter of 2011 but the results were dampened by weakness in its PC and services divisions.

HP's profit for the quarter ended Jan. 31 was US$1.36 per share before unusual items, up 27 percent from a year earlier and ahead of the $1.29 per share that financial analysts had expected, according to a consensus poll from Thomson Reuters.

Revenue was $32.30 billion, up 4 percent from a year earlier but below the $32.96 billion that analysts had been looking for.

"If you use Q1 as a marker, it's clear we do a lot of things well at HP. It's also clear that we have isolated areas that we need to improve," CEO Leo Apotheker told reporters after the results came out. "I'm committed to making these improvements to drive increased growth and operational excellence."

Revenue from HP's services division declined 2 percent from last year to $8.6 billion. Revenue from its Personal Systems Group also declined, by 1 percent, to $10.4 billion.

HP's enterprise hardware business fared better. Revenue from servers, network and storage gear climbed 22 percent to $5.6 billion. And revenue from printers and related products increased by 7 percent to $6.6 billion, HP said.

The company saw good growth from its commercial PC business but it was offset by weak sales to consumers. Apotheker blamed "softness" in the market but also acknowledged some channel issues at HP.

The services business was held back by weak short-term signings, especially in outsourcing and "value-added services," he said. HP had more success with larger deals, he said.

"We reported good results across most of the business but we have opportunities to improve growth in a few areas," Apotheker said.

HP made Apotheker its CEO last November and is in the midst of a minor makeover to improve its profitability and competitiveness. He's due to outline his plans for the company at an event in San Francisco next month.

The former SAP executive is expected to expand HP's efforts in enterprise software, as well as other profitable areas such as networking and storage.

HP is also expanding its focus on mobile gadgets. Earlier this month it announced a tablet PC and two smartphones based on the webOS software it acquired when it bought Palm last year.

HP is also shuffling its board, replacing four directors that were involved in the decision to oust CEO Mark Hurd last year. The new members include Patricia Russo, the former CEO of networking vendor Alcatel-Lucent, and Meg Whitman, who used to run eBay.

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James Niccolai

IDG News Service
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