Solid quarter for HP despite some disappointments: Hurd 20 February, 2007 By Patricia Pickett

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During a web cast, Palo Alto, Calif.-based HP released its financial results for the first fiscal quarter ending Jan. 31, 2007, which saw a net revenue of US$25.1 billion. The numbers translate into 11-per-cent year-over-year growth, or seven per cent when adjusted for the effects of currency.

"We had a solid quarter, characterized, I think, by solid revenue growth, share gains in key businesses, expense discipline and margin expansion," said Hurd, adding that HP did this while continuing to improve its cost structure by making progress in its restructuring program.

However, Hurd had some caveats to offer. "We want to make sure you're not confused, though: we know we have a lot of work ahead of us."

One of the areas where HP could see some improvement is in its Enterprise Storage and Servers (ESS) group, Hurd said. Overall, ESS reported revenue of $4.5 billion, up five per cent over the prior year period.

Revenue for storage grew three per cent, with HP's flagship midrange EVA line growing 18 per cent, which was good news, he said. However, that growth was offset by declines in the high-end array and tape business. "Tape is the old part of the business...and it declined faster than we'd like." Although HP feels good about its EDA line, Hurd said the company could still do better with that line and with some other core parts of the storage business.

Servers were a different story, said Hurd. Industry-standard server revenue increased 10 per cent, with blade revenue up 45 per cent year-over-year. Despite that, business critical systems revenue declined six per cent, with Integrity systems growth of 75 per cent offset by declines in PA-RISC and Alpha. "We just had a weak quarter, and I can't be any clearer with you than I'm just disappointed," Hurd said, adding that HP simply needs to do better in that area.

HP Software had some good news to report: the group's revenue was $550 million, an increase of 81 per cent year-over-year, attributed to strong momentum in the Mercury business, HP OpenView growth of 14 per cent and revenue declines of six per cent in HP OpenCall. As part of integration efforts, HP said it plans to combine Mercury and OpenView offerings under a new leadership category of Business Technology Optimization (BTO) software solutions.

Personal Systems Group (PSG) revenue grew 17 per cent year-over-year to $8.7 billion, with unit shipments up 19 per cent on a year-over-year basis. Notebook revenue grew 40 per cent over the prior year period, while desktop revenue declined one per cent. Commercial client revenue grew eight per cent year-over-year, while Consumer client revenue increased 28 per cent.

The Imaging and Printing Group (IPG) saw revenue growth of seven per cent year-over-year to $7 billion. On a year-over-year basis, supplies revenue grew 11 per cent, commercial hardware revenue grew two per cent and consumer hardware revenue was flat. Printer unit shipments increased 18 per cent year-over-year, and momentum in key growth initiatives continued, the firm said.

HP Services (HPS) revenue increased five per cent year-over-year to $3.9 billion. Revenue in Technology Services grew one per cent over the prior year period, while Consulting and Integration revenue was up 10 per cent and Outsourcing Services revenue went up 11 per cent.

HP also said it would modify its defined-benefit pension plan for those employees currently accruing benefits under the program, effective Jan. 1, 2008. As a result of these changes, the vendor estimated that it would receive a one-time pension curtailment gain of approximately $500 million.

As part of the announcement, the company said it would offer an option for eligible employees to participate in an early retirement program. Employees who don't want retire early will receive an increased company 401(k) match from four per cent to six per cent. The company said it expects the curtailment gain to offset the cost of the early retirement program. These changes do not affect pension benefits currently received by retirees and existing employees retain the benefits they have already earned, officials said.

"We are transforming the company -- we are not transformed," said Hurd. While HP has a lot of work to do in the coming year, it should also expect to see many opportunities, he added.