HP reports solid Q2 on strong PC, server sales

Hewlett-Packard reported solid results for its second quarter as strong growth in PC and x86 server sales helped offset an unremarkable quarter for its services business.

HP's revenue for the quarter ended April 30 was $30.8 billion, up 13% from a year earlier and ahead of the consensus estimate from Wall Street analysts, according to a poll by Thomson Reuters.

Net earnings were $2.2 billion, or 91 cents per share, each up 28% from a year earlier. Excluding acquisition fees and other one-time charges, earnings were $1.09 per share, 4 cents ahead of what Wall Street had expected.

The revenue figure was inflated 4% by favorable currency conditions, but HP still performed well in every geographic region, Chairman and CEO Mark Hurd said in a statement. Adjusted for currency, revenue was up 9% in the Americas, 7% in Europe and 10% in Asia Pacific, HP said.

Desktop PC sales climbed 27% and notebook sales 17%, bringing overall growth of 21% for HP's Personal Systems Group, where revenue was $10 billion.

Revenue from industry standard servers jumped 54%, blade revenue was up 45% and storage revenue increased 16%, HP said. Sales of its Business Critical Systems, which include Itanium servers running HP-UX, continued their decline, falling 17% from last year. But overall, revenue from the Enterprise Storage and Servers group climbed 31% to $4.5 billion.

HP's giant services division was a weak spot, growing just 2% to $8.7 billion. Outsourcing revenue increased 6%, but revenue from Technology Services and Business Process Outsourcing was roughly flat year over year. Application Services revenue was down 2%.

HP's Printing and Imaging Group saw revenue increase 8%, to $6.4 billion, while software sales declined 1% to $871 million.

The company raised its earnings guidance for the full year, to between $4.45 and $4.50 per share, up from $4.37 to $4.44 per share. Its acquisition of Palm will result in additional costs, however, so HP lowered the earnings estimate when one-time charges are factored in, to between $3.76 and $3.81 per share. It expects revenue for the full year to grow between 8% and 9%.

The results compare well with those of IBM, which has a similarly broad product portfolio. IBM reported a 13% increase in quarterly profits last month, to $2.6 billion, on revenue that climbed 5% to $22.9 billion. It too saw strong gains from industry standard servers and a relatively modest increase from services.

It's been a busy time for HP. On April 12 it closed its acquisition of 3Com for $2.7 billion, a deal that will allow it to offer more tightly woven server and networking systems and help fend off emerging competition from Cisco Systems.

Two weeks later HP announced plans to buy Palm for $1.2 billion. It hopes to turn around Palm's struggling handset businesses and use the Palm Web OS to make a play for the emerging tablet computer market.

HP has also been paying out for a botched services deal that EDS had with BritishSkyBroadcasting before HP bought the IT services firm two years ago. In March, HP had to cut the earnings it had reported for the first quarter by $73 million after a U.K. court ordered additional payments. HP has had to pay out about £270 million, or $389 million, on the case so far this year.

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