HP Quadruples Income for Fourth Quarter

Capping a year when it reclaimed the title of world’s largest PC vendor despite a boardroom scandal, Hewlett-Packard (HP) on Thursday reported net income of US$1.7 billion for the fourth quarter, more than four times its mark for that period last year.

HP listed earnings of $0.60 per share for the quarter ending Oct. 31 on revenue of US$24.6 billion. On a pro forma basis, which excludes certain one-time items, HP had earnings per share of $0.68, beating by $0.04 the consensus estimate from analysts polled by Thomson Financial. The analysts expected revenue of $24.12 billion.

For the fourth quarter last year, HP reported net income of just $400 million, or $0.14 a share on revenue of $22.9 billion.

The strong quarter pushed HP to full-year profits of $6.2 billion, far above its 2005 mark of $2.4 billion. The company reported full-year revenue of $91.7 billion, beating analysts’ expectations of $91.23 billion and matching their earnings target of $2.18 per share. Full-year earnings last year were just $0.82 per share.

All of HP’s six business divisions reported operating profit in the fourth quarter, and five of the six reported gains over the previous year’s quarter.

But results were mixed in HP’s enterprise storage and servers division. Revenue rose 4 percent to $4.7 billion from the prior year’s quarter, and operating profit rose to $502 million or 10.7 percent of revenue. But revenue grew by just 1 percent for its storage products. Eleven percent growth in HP’s midrange EVA storage product line was offset by declines in HP’s high-end storage arrays and its tape storage products.

“Our growth profile of our storage business is negatively impacted by our mix toward the declining tape market, ” HP Chairman and Chief Executive Officer Mark Hurd said. “We are not happy with our storage growth in the fourth quarter, and we need to do a better job of driving top line momentum in the coming year.”

Fourth-quarter revenue, compared to the same quarter last year, and operating margins for other divisions, are as follows:

• Personal systems group: Revenue grew 10 percent to $7.8 billion; operating profit reached $336 million, or 4.3 percent of revenue.

• Imaging and printing systems: Revenue up 7 percent to $7.3 billion; operating profit of $1.1 billion, or 14.8 percent.

• Software: Revenue up 14 percent to $349 million; operating profit of $60 million, or 17.2 percent.

“This is the strongest quarter we’ve had in a number of years,” said Hurd.

A corporate restructuring program, which Hurd launched in July 2005 two months after he became CEO, “is substantially completed,” said Robert Wayman, HP’s chief financial officer. About 14,200 jobs have been eliminated at the company since then, although approximately another 1,000 jobs will be eliminated in the first quarter of HP’s 2007 fiscal year, Wayman said.

Thursday’s earnings report comes just one day after ousted HP Chairwoman Patricia Dunn made another court appearance in the HP board scandal case. Dunn pleaded not guilty in Santa Clara County Superior Court to four California state felony charges related to the company’s investigation of leaks by HP directors to the news media. She is one of five people charged in connection with the case, in which false pretenses were allegedly used to gain access to private phone records.

Hurd maintains that the board scandal has had no impact on HP’s business operations.

Despite that turmoil, the company has performed well in sales, passing its rival Dell to become the world’s largest PC vendor. HP hadn’t worn that crown for three years. Dell’s fortunes continued to fall Thursday, as the company postponed its own earnings call in the wake of a formal investigation by the U.S. Securities and Exchange Commission.

-Ben Ames and Robert Mullins, IDG News Service (San Francisco Bureau)

Related Links:

• HP Overtakes Dell in Global PC Space

• HP Spying Scandal

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