HP profit rises on servers, PCs

The company posts a first-quarter net income of $962 million, an increase of 33 percent compared with a year ago.

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Stephen Shankland
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Hewlett-Packard reported a first-quarter net income of $962 million, a 33 percent increase from the year-ago period, as sales of its servers, printers and PCs grew.

Revenue for the quarter, ended Jan. 31, increased 9 percent from $17.9 billion to $19.5 billion, HP said. The revenue and earnings matched what HP had predicted last week.

The Palo Alto, Calif.-based company had earnings of 30 cents per share, according to Generally Accepted Accounting Principles. Excluding several one-time items, HP earned 35 cents per share, matching average expectations of analysts Thomson First Call surveyed.

"HP delivered a solid quarter," HP Chief Executive Carly Fiorina said in a statement. The company's profit was the most balanced it's been across its individual business units since the company's merger with Compaq Computer, she said.

HP is still regaining its equilibrium after the 2002 merger, which triggered massive changes in most parts of the company. But with most product lines now settled down, the company has embarked on a major strategy called Adaptive Enterprise that includes all the company's divisions.

In the current quarter, which will end in April, HP expects revenue of $19.2 billion to $19.6 billion and earnings per share of 34 cents, excluding some one-time items. HP said the forecast was aligned with analyst expectations and that it agrees with analyst forecasts of $1.43 earnings per share for the entire fiscal year.

Analysts surveyed by First Call had an average revenue expectation of $19.41 billion, about $100 million less than the $19.51 HP reported.

Of HP's revenue, $6.2 billion came from PCs; $6.2 billion came from printers and imaging products; $3.9 billion came from servers, storage and software; and $3.2 billion was from services.

Profit was spread differently, however. Printing and imaging generated operating profit of $968 million, a 6 percent increase over the year-earlier quarter. Services operating profit was $258 million, an 11.4 percent decrease.

Servers and related enterprise products, which were unprofitable a year earlier, had operating profit of $108 million. PC operating profit was $62 million compared with $33 million a year earlier.

In servers, the company's Xeon-based ProLiant line had a 15 percent revenue increase, but its Unix servers, using HP's PA-RISC processor and Compaq's Alpha, declined 13 percent. Revenue from servers based on Intel's Itanium processor, which is gradually replacing PA-RISC and Alpha in HP's line, increased 60 percent.

AlphaServer revenue declined 32 percent, Fiorina said. But because the company is reducing AlphaServer expenses even faster, the revenue drops aren't going to be an issue, she said.

"We're now moving into a period starting in 2004 where we will be supporting fewer platforms. We're supporting Alpha and PA-RISC (today). There's a lot of research and development associated with supporting multiple platforms. That ramps down in 2004," she said.

Because AlphaServer customers must move to a different system at some point, competitors IBM and Sun Microsystems have been angling to lure those customers away from HP.

Software, a crucial part of the Adaptive Enterprise work, had an operating loss of $46 million. HP has been boosting its software products through a series of acquisitions.

"We don't expect to be profitable in software in the short term, but the strategic investments we are making will pay off in the long term," Fiorina said.

In PCs, HP sold 23 percent more units and saw a 20 percent revenue increase. Notebook shipments in particular increased 52 percent with revenue increasing 42 percent, Fiorina said.

"For the second quarter in a row, we grew both desktop and notebook revenue twice as fast as our nearest competitor," Fiorina said.

Also included in personal systems are the iPaq handheld computers, which grew 69 percent in unit shipments compared with the year-earlier quarter and which had "solid operating profit," Fiorina said.

Fiorina also dinged Dell when it came to printers. HP sells 1 million printers a week, considerably more than the 2 million Dell has sold to date, Fiorina said. "We continue to be very confident about our position in the printing business," she said.

A significant part of the printing business is sales of supplies such as photo paper and inkjet cartridges. Though HP didn't say how much money it earned from supplies, it said the revenue increased 8 percent.