HP Hardware Business Drives Strong Q3 Revenue, Earnings Growth

Hewlett-Packard on Thursday reported double-digit revenue growth and a 6 percent growth in profit for its third fiscal quarter of 2010, and raised its outlook for the entire year based on investments in some new technologies.

HP attributed its third fiscal quarter growth to strengths across all its product lines and across all its geographies thanks to having one of the most complete product offerings in the industry.

For its third fiscal quarter of 2010, which ended July 31, HP reported revenue of $30.7 billion, up 11.4 percent compared to the 27.6 billion it reported during the same quarter last year. Revenue grew a healthy 12 percent in the Americas.

HP also reported earnings of $1.8 billion, or 75 cents per share, up six percent from the $1.7 billion, or 69 cents per share, it reported last year.

The results reflected strong growth that highlights HP's diverse offerings and its strong position in the market which allows the company to use its financial strength to invest in a balance of growth and efficiency, said Cathie Lesjak, HP's CFO and interim CEO.

When questioned about the recent departure of former CEO, President and Chairman Mark Hurd, an HP executive responded that his exit is having little impact on the company.

While Hurd was well-known for visiting with clients on a very frequent basis, HP has general managers working with all the company's top accounts, and is increasing the number of sales reps, said Ann Livermore, executive vice president of HP's enterprise business.

As a result, customers will not see much of a change, Livermore said. "My staff and I have personal relationships with all our top accounts," she said.

Hurd left the company Aug. 6, following the conclusion of a sexual harassment investigation in which he was found in violation of HP's Standards of Business Conduct, though not its sexual harassment policy.

Revenue for HP's Enterprise Storage and Servers (ESS) business grew 19 percent over last year to total $4.4 billion. That includes a 31 percent increase in industry standard server revenue, a 29 percent growth in blade server revenue, and a 10 percent growth in storage. However, the company's business critical systems revenue fell 15 percent as customers waited for a new release of HP's Non Stop server line, expected in the current quarter, Lesjak said.

When asked during the analyst question and answer session why HP's storage business grew only 10 percent, which was much lower than the growth rate of competitors such as EMC and NetApp, Lesjak said that many of the company's storage assets are new and relatively small, and have not had the opportunity to make a major impact on HP's storage business.

Next: Hardware Business Strong

Ann Livermore, executive vice president of HP's enterprise business, pointed to such assets as the company's LeftHand scale-out storage architecture, and its new StoreOnce dedupe technology, which was introduced in June.

Livermore also said HP's ESS just came off one of its biggest quarters ever in terms of server, storage, and networking product releases. "All these things are a sign of the R&D we are doing, and will continue to do," she said.

HP's Personal Systems Group (PSG) reported revenue growth of 17 percent to reach $9.9 billion on the strength of a 12 percent growth in shipments. That includes an increase in notebook PC revenue of 10 percent and in desktop PC revenue of 27 percent. Revenue from sales to commercial clients grew 25 percent, compared to a 12 percent growth on the consumer side.

The results came from a strong PC refresh cycle combined with a 5 percent growth in average selling price compared to last year and a 1 percent growth compared to last quarter, Lesjak said.

HP's networking business also did well. Revenue from the company's ProCurve networking business grew organically by 42 percent. However, when the results of the 3Com acquisition were included, growth jumped 198 percent over last year.

Lesjak said that the networking business typically offers good margins, and so the 3Com acquisition will help with future HP results. "Now that HP has the offering we have, we have seen strong demand," she said.

Next: Increasing Outlook For 2010

HP's Image and Printing Group (IPG) reported a 9-percent growth in revenue to $6.2 billion, led by a 28 percent growth in commercial hardware and a 4 percent growth in consumer hardware revenue. Supplies revenue grew 5 percent compared to last year. HP sold 44 percent more commercial printers and 9 percent more consumer printers on a unit basis over last year.

HP's software revenue increased 2 percent to reach $863 million, with BTO software revenue up 3 percent and other software revenue down 1 percent.

Services revenue increased 1 percent to $8.6 billion, while HP Financial Services revenue fell 14 percent to $764 million despite a 3-percent increase in financing volume.

Looking forward, HP expects revenue for its fourth quarter of fiscal 201 to be between $32.5 billion and $32.7 billion, with earnings per share expected to be $1.03 to $1.05. This compares to $30.8 billion in revenue and earnings of 99 cent per share for the same period as last year.

HP also increased its outlook for all of fiscal 2010. The company expects revenue of $125.3 billion to $125.5 billion, up about 9 percent over fiscal 2009. The company also expects earnings per share for the entire year to increase by 17 percent to reach between $4.49 and $4.51.