HP reports strong PC, software sales

IDG News Service - Helped by double-digit sales growth in PCs and software from its Mercury Interactive acquisition, Hewlett-Packard Co. reported a 27% increase in operating profit on a 13% rise in revenue in second-quarter financial results released Wednesday. But net profit slipped by 7% from the same quarter last year.

HP reported net income of $1.8 billion, or 65 cents per share, on revenue of $25.5 billion, for the three-month period that ended April 30. That compares with year-ago net profit of $1.9 billion, or 66 cents per share on revenue of $22.55 billion. Operating profit came in at $2.1 billion.

Net profit from the same quarter last year was affected by a favorable tax ruling by the U.S. Internal Revenue Service that added 15 cents to HP's earnings per share.

For the most recent quarter, revenue for HP's personal systems group rose 24% to $8.7 billion, including notebook computer sales growth of 45%.

The HP software group had revenue growth of 54% to $523 million. HP didn't own Mercury in the second quarter of last year.

HP had mixed results in its enterprise storage and servers group. Overall segment revenue growth was 8%, while "industry-standard" server growth was 17%, led by blade server growth of 58%. HP also reported 60% growth in the sales of servers based on the Itanium processors it co-developed with Intel Corp.

But that growth was offset by declines in sales of servers running HP's PA-RISC processors and servers with the Alpha processors developed by the former Digital Equipment Co., which HP obtained through acquisition.

Storage revenue grew by only 1%, as a 10% increase in sales of HP's midrange EVA storage systems was offset by declines in higher-end storage arrays and in tape storage products.

While calling it a "strong second quarter," Mark Hurd, HP's CEO, chairman and president, said the pressure on cost containment at the company will continue. "We're still transitioning, and we are not close to being done," he said.

Three months ago, HP announced it would stop funding its defined-benefit pension program for employees as of Jan. 1, 2008, and will offer some workers an early-retirement incentive. On Wednesday, HP Chief Financial Officer Cathie Lesjak said 3,000 HP employees have agreed to take the early-retirement program and will leave HP by May 31. HP's global workforce, as reported in its annual report, is 156,000.

Hurd, on a conference call with stock analysts, declined to comment on published reports that rival Dell Inc. would start selling its desktop and notebook computers through the retail sales channel. Dell, which primarily sells through catalogs, phone orders and its Web site, fell behind HP in PC sales in 2006, according to IDC.

"They do what's best for their customers, and we do what's best for our customers," Hurd said.