HP benefits from recovering economy

Hewlett-Packard pointed to a strengthening recovery as it reported a 25 per cent rise
in quarterly net income and raised its revenue and profit forecasts on Wednesday.

The group blew past Wall Street forecasts with strong fiscal first-quarter gains in its personal computer, printing and corporate computing units, aided by the release of Microsoft’s Windows 7 operating system.

“There’s good strength in the US and in emerging markets, particularly China,” Cathie Lesjak, chief financial officer, told the Financial Times.

She said residual softness in Europe was the only factor against robust improvement.

Coming after solid results from other technology mainstays, HP’s report gave grounds for optimism in the sector.

The trend was expected to be maintained by Dell, which has ceded PC share to HP in order to maintain profit margins, and is expected to report slightly improved quarterly earnings after the US markets close today.

First-quarter sales rose by
8 per cent to $31.2bn, while earnings per share rose to $2.32bn or 96 cents a share, from $1.86bn, or 75 cents.

Consumers seeking Windows 7 machines pushed HP’s personal computer sales up 20 per cent to $10.6bn in the three months ended January 31.

The group said business purchases also rose. Operating margin in the segment held steady at 5 per cent of revenue.

HP executives told analysts that companies were showing increased interest in Windows 7 and they expected a long-
delayed corporate replacement cycle to get into high gear in the second half.

Servers and storage sales grew by 11 per cent in the first quarter.

Services revenue ticked down 1 per cent but HP’s efforts to cut costs in the wake of its acquisition of Electronic Data Systems, the US information technology outsourcing company, drove profit up to $1.4bn from $1.1bn.

The combination of strong first-quarter results and confidence in the market’s direction prompted the company to lift its full-year revenue projection to about $122bn from $118.5bn, which would constitute a 6 per cent advance.

Mark Hurd, HP’s chief executive, attributed much of the progress to a rebound in technology spending but said the group was gaining share in PCs and servers and continuing to trim costs.