HP defies economic slide with strong Q4, optimistic '09 forecast

IDG News Service - Hewlett-Packard Co. said today that it will report better-than-expected financial results for its fourth quarter and that it expects to top earlier profit projections for fiscal 2009, despite the global economic downturn.

HP, the world's largest PC maker, released its preliminary fourth-quarter results this morning and is scheduled to announce the full numbers next Monday.

Revenue for the three-month period that ended Oct. 31 came in at $33.6 billion, a 19% year-over-year increase, or 16% after adjusting for currency fluctuations, HP said. Excluding the revenue that HP gained from its acquisition of Electronic Data Systems Corp. in August, business in the fourth quarter was up by 5% compared with the same period a year ago, or 2% after accounting for currency effects.

Financial analysts had been forecasting a consensus average of about $33 billion in fourth-quarter revenue, according to data gathered by the Thomson First Call service. Meanwhile, HP said that its net income for the quarter totaled 84 cents per share, three cents more than the average estimate of analysts polled by Thomson First Call.

HP's results compare favorably with the lower-than-expected numbers that vendors such as SAP AG and Sun Microsystems Inc. have reported since economic conditions worsened in mid-September. The preliminary earnings report also comes just a week after Intel Corp. cut its Q4 forecast by as much as 20% and Sun announced plans to lay off up to 6,000 workers.

HP said unfavorable currency exchange rates likely will drag down its fiscal 2009 revenue by five percentage points in the first quarter and six to seven points for the year as a whole. Contributing to the exchange problems is the fact that the U.S. dollar recently has gained strength against currencies such as the euro and the British pound.

Still, fiscal 2009 doesn't look to be the disaster for HP that some IT vendors are expecting in the months ahead. The company said it expects revenue of $32 billion to $32.5 billion for its first quarter, with earnings per share of 80 to 82 cents. For the full fiscal year, HP said revenue should total between $127.5 billion and $130 billion, with profits of $3.38 to $3.53 per share. The revenue forecast is a bit below outside projections, but the profit prediction is above them.

Ed Thomas, a business process outsourcing analyst at Datamonitor PLC, said HP's preliminary Q4 results seem to indicate that its integration of EDS may be starting off well following the closing of the $13.9 billion deal. But fully integrating EDS will be a long process, Thomas said, adding that it may be 12 to 18 months before a clear picture of the combined vendor's future develops.

In a weak economy, companies tend to look to outsourcing to reduce costs, which could help boost the need for HP's IT services capabilities, Thomas said.