*NEWS*HP NEARS GOAL OF OVERTAKING I.B.M.

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*NEWS*HP NEARS GOAL OF OVERTAKING I.B.M.

 user 2006-08-22 at 12:57:00 pm Views: 98
  • #16147

    Hewlett-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.