Posted on: Friday, February 20, 2004
Troubled groups help boost HP's net income 30%
By Terril Yue Jones
Los Angeles Times
Computer maker Hewlett-Packard Co. said yesterday that first-quarter net income increased 30 percent as its four main business groups, including the troubled personal computer and enterprise computing divisions, posted their second consecutive operating profits.
HP earned $936 million, or 30 cents a share, up from $721 million, or 24 cents a share, in the previous fiscal first quarter. Revenue for the three months ending Jan. 31 rose 9 percent to $19.5 billion from $17.9 billion a year earlier.
Investors have long been skeptical that the technology giant from Palo Alto, Calif., could keep that momentum going. In particular, they have been wary of HP's ability to maintain operating profit for its enterprise group, which sells big server computers that run large computer networks and other expensive computers that store immense amounts of data.
HP shares rose 35 cents to close at $23.86 on the New York Stock Exchange yesterday before falling back 37 cents to $23.49 in extended trading after the earnings report.
In the quarter, HP's Enterprise Systems Group recorded an operating profit of $108 million on sales of $3.9 billion, which amounted to an operating margin of 2.8 percent. Though it was the unit's second consecutive quarter in the black, it had 10 consecutive quarters of operating losses between 2001 and 2003.
With few businesses expected to spend big bucks on high-end computer systems this year, it is imperative that the unit take advantage of an anticipated upturn in demand for mid-range systems, said Robert Cihra, an analyst with the brokerage Fulcrum Global Partners in New York.
"Enterprise goes from a swing factor in 2003 to the factor in 2004," Cihra said.
On the PC side, HP's business is under attack by archrival Dell Inc. Though HP's personal computer business turned in an operating profit of $62 million in the quarter, its profit margin amounted to a paltry 1 percent.
Analysts say HP makes money on the PCs it sells to businesses but loses money on the computers it sells to consumers. HP Chief Executive Carly Fiorina vowed to fix that.
"Our goal is to have all PCs profitable," she said in a conference call with analysts.
Global PC sales grew about 11 percent last year and are expected to increase by at least the same rate this year, according to market researcher IDC. That won't necessarily be good news for HP if it becomes mired in a price war with Dell, said Nick Nilarp, a hardware analyst with Fitch Ratings in New York.
"It requires a significant amount of inventory turn," he said, "and Dell's direct model with low inventory has the advantage."
HP's printing and imaging group, the company's perennial profit center, earned an operating profit of $968 million against sales of $5.9 billion, and its services group earned $258 million in operating profit on revenue of $3.2 billion, an 8 percent margin. HP does not disclose net profit of individual divisions.
Looking ahead, HP said revenue in the current quarter could climb to $19.6 billion. Operating profit is expected to be around 34 cents per share in the second quarter and $1.43 for the full year, identical to the consensus of Wall Street analysts surveyed by Thomson First Call.
