Assuaging Fears

By Reuters  |  Print this article Print

HP reported strong computer, server and storage sales and raised its fiscal 2011 forecasts, shrugging off concerns about government spending cuts that have hurt rival Cisco.

HP's results helped assuage fears that public sector budget cuts were beginning to hurt technology providers. HP did warn that "uneven" consumer performance has affected its outlook. Consumer markets comprise roughly a quarter of its revenue.

"Demand is not as bad as people had thought," said Wedbush Morgan Securities analyst Kaushik Roy. "After Cisco guided cautiously, people got nervous. Now it appears demand is not as bad."

HP raised its fiscal 2011 outlook, forecasting earnings excluding items of $5.16 to $5.26 a share on revenue of $132 billion to $133.5 billion.

For the current quarter, HP forecast an adjusted profit of 1.28 to $1.30 a share on revenue of $32.8 billion to $33 billion, above Wall Street's targets.

HP's fiscal fourth-quarter results provided a fresh opportunity for Apotheker, a former SAP AG (SAPG.DE) CEO, to make an impression on analysts and investors.

Revenue in storage and servers surged 25 percent. Sales in the PC group rose only 4 percent, but revenue from commercial PCs rose 20 percent and margins in the business were vastly improved on better pricing and component costs.


HP's networking business also turned in a good performance, following the recent purchase of 3Com.

Its adjusted operating margin rose 12 percent, in line with Wall Street targets. Component costs weakened, something rival Dell Inc (NASDAQ:DELL) also mentioned last week.

Performance was solid but not exceptional in printing and services segments, key to recurring revenue and profit streams. Services revenue was flat, while print revenue rose 8 percent.

HP reported net earnings for the fiscal fourth quarter ended Oct. 31 of $2.54 billion, or $1.10 a share, up from $2.41 billion, or 99 cents a share, a year earlier.

Excluding items, the company earned $1.33 a share, better than the average analyst estimate of $1.27 a share, according to Thomson Reuters I/B/E/S.

Revenue rose 8 percent to $33.3 billion, above Wall Street's estimate of $32.75 billion.

Shares of Palo Alto, California-based HP closed at $43.25 and rose to $43.94 in extended trading. (Reporting by Gabriel Madway and Edwin Chan. Editing by Robert MacMillan and David Gregorio)