AP News, February 21st, 2007
Hewlett-Packard Co. continued to steal a major slice of the personal computer market from struggling rival Dell Inc. in the first quarter _ and analysts said HP still has room to grow.
HP said revenue from laptop sales jumped 40 percent in the quarter compared with the same period a year ago. At the same time, revenue from desktop computer sales dropped 1 percent as their portable counterparts become increasingly pervasive.
Analysts said the surging laptop sales indicated HP was making aggressive market-share gains at Dell's expense in a fast-growing industry segment and has enough momentum to extend its expansion.
"They clearly gained a lot of share. We were expecting strong results in PCs but we didn't expect them to be this strong," said Shaw Wu, an analyst with American Technology Research. "They're basically beating up Dell more and more, and there's room for them to gain more share. From Dell's perspective that could be very scary."
HP said after the market closed Tuesday that its first-quarter profit jumped 26 percent as the company benefited from higher sales of laptop computers, printers and printing supplies during a robust holiday spending season.
The results beat Wall Street's expectations, but concerns about mounting inventory and investors' assumptions that HP would beat analyst estimates by even more helped send the stock price down slightly in after-hours trading.
The Palo Alto-based computer and printer maker said it earned $1.55 billion, or 55 cents per share, for the quarter ended Jan. 31, compared with $1.23 billion, or 42 cents per share, for the same period last year.
Revenue for the period was $25.1 billion, compared with $22.7 billion during the same quarter last year.
Excluding one-time charges, HP said it earned $1.8 billion, or 65 cents per share, beating analyst forecasts.
Analysts were expecting HP to earn, on average, 62 cents per share on $24.3 billion in revenue, according to a survey by Thomson Financial.
HP snagged the title of the world's No. 1 seller of PCs worldwide from Dell late last year and continued to profit from that momentum in the first quarter.
HP also posted strong numbers in its lucrative Imaging and Printing Group, which makes the consumer and business printers and supplies that provide the bulk of the company's profits.
Operating profit for that business unit increased 10 percent over last year to $1.1 billion, or 15.3 percent of revenue.
However, HP is now facing increasing competition in that market with Eastman Kodak Co.'s launch of a line of competing inkjet-printer products.
"HP delivered a strong first quarter, with improved margins and solid revenue growth across our businesses," Mark Hurd, HP's chairman and chief executive officer, said in a statement. "We have a lot of work and opportunities ahead of us. I am confident we can continue to execute with discipline and deliver a year of strong financial returns."
HP's stock gained 36 cents to close at $43.13 on the New York Stock Exchange before the results were released. In after-hours trading, HP shares fell 56 cents to $42.57.
Daniel Renouard, managing director of equity research for Robert W. Baird & Co., said investors may have been expecting HP to beat the Wall Street consensus earnings estimate by even more than 3 cents per share.
However, he pointed out the shares' decline was minor and should not overshadow what was otherwise a "very good quarter."
"This is a company that has met or beat consensus for 10 quarters in a row _ our view is that people start to expect it," Renouard said. "The quarter was more or less what we had expected. It's still OK but maybe not exactly what people had hoped for."
In the latest in a series of cost-cutting measures, the company said it is offering an early retirement program to an unspecified number of eligible employees.
HP said it expects to pay for the program with the approximately $500 million saved from changes to its defined-benefit pension plan.
HP also provided its financial forecast for the second quarter and 2007 fiscal year.
For the second quarter, HP said it expects to earn between 57 cents and 58 cents on roughly $24.5 billion in revenue. Excluding one-time costs, the company said it expects net income of between 63 cents and 64 cents per share for the quarter.
Analysts were expecting HP to earn between 63 cents on $24.1 billion in revenue.
For the 2007 fiscal year, HP said it expects to record revenue of $98 billion to $99 billion.
Net income per share is expected to be in the range of $2.35 to $2.40, and between $2.60 to $2.65 when excluding one-time charges.
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Hewlett-Packard Co.: http://www.hp.com
