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AnonymousInactiveHewlett-Packard Nears Goal of Overtaking I.B.M.
SAN
FRANCISCO, Aug. 06 — Continuing to grow at a pace that will enable it
to usurp I.B.M.’s title as the world’s largest technology company,
Hewlett-Packard reported quarterly earnings on Wednesday that exceeded
analysts’ expectations.Revenue in its third quarter rose to $21.9
billion, up 5 percent or $1.1 billion from a year ago. At this rate of
growth, most Hewlett-Packard executives think the company could take
I.B.M.’s long-held title this year. Mark V. Hurd, the chief executive
of Hewlett-Packard, said he expected revenue of $92.1 billion for the
year. Analysts expect I.B.M.’s full-year revenue will be $89.9
billion.On a trailing 12-month basis, H.P. already has the title, $90
billion to $88.5 billion. “This is something that people really didn’t
see coming,” said Cindy Shaw, an analyst with Moors & Cabot
Investments.Hewlett-Packard reported third-quarter net income of $1.38
billion, or 48 cents a share, compared with $73 million, or 3 cents a
share, a year earlier. Before adjustments, income was 52 cents a share,
exceeding analysts’ expectations by 5 cents.The 2005 quarter was
affected by a larger-than-normal provision for taxes of $960 million
resulting from the company’s decision to repatriate $14.5 billion in
cash from foreign earnings. In terms of operating income, the company
reported a 65.4 percent improvement year over year.Hewlett-Packard’s
sure-footedness impressed analysts. “Almost everyone else seems to be
tripping over themselves or going out of their way to cite problems in
the overall economic environment, but H.P. is doing neither,” said
Laura Conigliaro, a Goldman Sachs analyst.Hewlett-Packard beat
analysts’ estimates for net income, as it has done every quarter since
Mr. Hurd took the top job early last year. “That consistency is
something that investors really like,” said A. M. Sacconaghi, an
analyst with Sanford C. Bernstein & Company.The company also
announced that it would buy back $6 billion in stock, its largest
repurchase ever, representing more than 6 percent of its shares at
current prices. The stock rose about 6 percent in after-hours trading.
Before the earnings announcement, it ended the regular session at
$34.43, up 44 cents.After restructuring the company and doing some
major cost-cutting in personnel and real estate, Mr. Hurd has in recent
months been pushing his executives to seek more revenue growth. He said
Wednesday during a conference call with reporters that the company
would continue to trim costs as it fostered growth. “Costs and growth
are different sides of the same coin,” he said. “We will spend money to
save money and save money to spend money. We will never be done looking
at our cost structure.”Not only did the company see higher companywide
operating margins — the percentage of revenue left over after
production and overhead costs — of 6.9 percent, but even previously
lagging divisions, like services and software, were finally seeing
profitable revenue growth.One of the biggest surprises was how
profitable the company’s computer division was in a very competitive
market in which Dell, the company’s chief rival, was cutting prices of
PC’s. Hewlett-Packard said the division’s operating profit margin was 4
percent, the highest it has been since the merger with Compaq in
2002.Revenue from PC’s grew 8 percent, to $6.9 billion, with strong
growth of 14 percent in the sales of notebook computers. “I was
particularly pleased because this is our seasonally weakest quarter,”
Mr. Hurd said.The company’s computer division grew much faster than the
comparable results that Dell is expected to report Thursday. Dell has
said that it expected revenue growth of about 4.3 percent from a year
ago.This quarter’s results confirmed that Hewlett-Packard is doing more
than profiting from Dell’s mistakes. Dell is having no impact on
Hewlett-Packard. “It shows that through restructuring and execution,
H.P. has significantly changed the competitive landscape,” William
Shope, an analyst with J. P. Morgan, said. “A lot of people were
concerned that Dell’s woes would spread to H.P., but we are not seeing
any signs of that.”The printing and imaging division continued to be
the cash-generating engine of the company. Revenue grew 5 percent, to
$6.2 billion. An operating margin of 14.2 percent was lower than last
quarter, but the company had been saying it would lower margins to
increase the sales of printers that use a lot of ink. Printer shipments
were up 15 percent over all and up 23 percent in the commercial
segment. The company makes its highest profit margin on ink and toner
sales, and strong sales of printers in this quarter will lead to future
strong sales of ink.Hewlett-Packard also said it ended the quarter with
$16 billion in cash. It had free cash flow, or cash from operations
after capital expenditure, so far this year of $8.1 billion, “a
full-year record in just three quarters,” Mr. Hurd said.
Hewlett-Packard intends to use some of that cash for the $4.5 billion
acquisition of Mercury Interactive, a business software company. H.P.
is also hiring more sales representatives for its efforts to expand in
services and commercial printing.Ms. Conigliaro said the company could
continue to achieve its target of 4 to 6 percent revenue growth without
more major acquisitions. But she said that over the longer term the
company would need acquisitions to sustain growth. -
AuthorAugust 22, 2006 at 12:57 PM
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