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HP beats earnings estimates by a nickel

Hewlett-Packard beats analyst expectations by a nickel, reporting operating income of 85 cents per share on $12.2 billion in revenue.

Hewlett-Packard beat analyst expectations by a nickel, reporting operating income of 85 cents per share on $12.2 billion in revenue.

Wall Street analysts surveyed by First Call expected the Palo Alto, California-based computing colossus to report profits of 80 cents per share. It's the fourth quarter in a row HP has exceeded expectations.

The company had profits of $863 million for the quarter ending July 31, HP said. Including $60 million in charges from splitting the company in two, the company earned 81 cents per share.

During the same quarter HWP stock chart last year, HP had earnings of $621 million, or 58 cents per share, on revenue of $11 billion.

Intel-based servers and notebooks helped boost revenue from HP's computer business, the company said. Higher up the product line, Unix servers achieved "solid" revenue growth, and the company's new N-Class servers started shipping in high volumes, HP said.

In storage, revenues "fell sharply" because of the switch from EMC products to Hitachi Data Systems at the high end of HP's product line.

In services and support, decreases in consulting revenue were offset by increases in money from customers who outsourced operations to HP or called on HP to help keep critical computer systems up and running.

Revenue for the Agilent Technologies section of HP increased 8 percent compared to the like quarter a year ago, HP said. Adjusting for the power amplifier semiconductor business HP sold last year, that growth would have been 10 percent. Optical network equipment and products used by the pharmaceutical industry were particularly fast-growing revenue sources at Agilent, HP said.

On a tear
HP's stock price is near its all-time high, partly on the promise of a rosy future and the resolution or a number of key strategic decisions. Among recent changes, it selected Carleton Fiorina to become chief executive, spun off the company's test and measurement organization into the new Agilent Technologies, and realigned its computer line around the delivery of Internet services.

Optimism, however, is tempered by the fact that HP has entered the more difficult phase of making such decisions pay off.

The company has been making the rounds describing its Internet services plan, called "e-services," and the core technology for it, called "e-speak." HP will continue to spread its message at the HP World conference this week in San Francisco.

E-speak is designed to let customers easily search the sprawling Internet. HP has lined up several partners using e-speak, including Merrill Lynch, Uniscape, Captura, and Helsinki Telephone.

In addition, HP faces several more challenges. It could suffer as a result of Wal-Mart's decision to sell Lexmark printers instead of HP's low-cost Apollo line, said Steve Milunovich, a securities analyst with Merrill Lynch. Although printers are getting less expensive--and therefore less profitable--HP has experienced "phenomenal" growth in the money it makes selling ink cartridges and other printer supplies, the company has said.

Milunovich estimated a 12 percent revenue gain, to $12.3 billion, for the quarter. "We see strength in PCs, servers, and printers," he said. In particular, HP has been pleased with its new N-Class servers, with which the company hopes to compete better with Internet infrastructure giant Sun Microsystems.

However, its battle with EMC over high-end storage products could take a toll on HP. After three years reselling EMC equipment, HP evicted EMC from its product line, choosing instead to sell Hitachi storage products under the HP name. The deal gives HP a greater share of revenue from each sale, but EMC has argued that it's untroubled by the HP divorce since it will be able to sell directly to HP customers without having to share revenues.

Meanwhile, HP is in the process of spinning off Agilent Technologies, the group that has sold electronics testing equipment, medical equipment, and a range of chips for tasks such as high-speed optical networks. Agilent has just filed its intent for an initial public offering, and HP expected split-up costs to increase in the most recent quarter.