HP beats profit predictions

Hewlett-Packard said that stronger than expected Chinese and US consumer markets helped it beat Wall Street profit projections for the second quarter, and the world’s leading personal computer company by revenue struck a note of cautious optimism on the economy as a whole.

“We saw improvement in China that was material,” said Mark Hurd, HP’s chief executive.

“We’re going to need another quarter of data to make a meaningful statement” on whether the global recession has bottomed.

HP’s revenue continued to slide, declining 3 per cent year-on-year to $27.4bn despite the acquisition of Electronic Data Systems. Revenue fell 1.4 per cent on the last quarter.

Sales of servers and storage equipment fell 28 per cent from a year earlier, while the larger PC and printing divisions reported drop-offs of 19 per cent and 23 per cent, respectively.

However, services revenue doubled and profit margins there widened, delivering $1.17bn of HP’s $3.1bn in profit from operations, more than the $1.07bn from the workhorse printing division.

Overall, the company turned in GAAP earnings per share of 70 cents and adjusted earnings of 86 cents, which hit the consensus of brokerages. But Cathie Lesjak, the chief financial officer, said that the adjusted figure would have been 88 cents without a litigation charge, related to a patent dispute.

Mr Hurd said the quarter was far less volatile than the first quarter and that the company would stick to its previous guidance for full-year results.

“It’s a more predictable environment than we had,” he told analysts on a conference call. “Our guidance is meant to be sort of ‘steady as she goes’”.

While Mr Hurd said US consumers were buying more computers than had been expected, they are still inclined to buy cheaper notebooks than full machines. He said he didn’t expect a similar increase in corporate purchases until new internal budgets come into play next year.

In the meantime, HP renewed its commitment to cutting costs. Ms Lesjak said the company would cut another 2 per cent of its head count in “targeted actions to structurally change and improve the effectiveness of our product businesses”. It is halfway through the previously announced cuts of 24,000 positions, executives said.

The company also said it found another $500m in real-estate related savings from the EDS acquisition that would kick in during 2012.

Mr Hurd said the company’s integration of EDS was ahead of plan and that customer satisfaction and deal flow were up, the latter because of a greater role being played by HP’s sales force.

And he tried to assure analysts that the sales decline in the printing division would reverse when the economy improves, growing by low- to mid-single digit percentages in better times.

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