Hewlett-Packard reported solid quarterly results on Thursday, helped by strong sales in consumer markets and tight cost controls. But the company's executives delivered a cautious outlook for technology spending in the corporate market for computer hardware, software and services.
Carly Fiorina, the chief executive of Hewlett-Packard, said in a conference call with analysts that she expected corporate spending on information technology to increase by 1 percent to 2 percent this year. Hewlett-Packard is the second-largest computer company, after IBM, and her modest expectations suggest that the recovery in technology spending may well be less robust than many analysts expect.
Corporate customers, Fiorina said, have become "more discriminating" in their technology spending habits over the last few years. "And I think that is going to continue," despite an improving economy, she said.
Hewlett-Packard reported that its net income rose 30 percent from the comparable quarter a year ago to US$936 million, or US$0.30 a share, in the first fiscal quarter ended in January. Revenue for the quarter rose 9 percent from the quarter a year ago to US$19.5 billion. After excluding currency gains, the company's sales rose only 1 percent.
Hewlett-Packard's quarterly earnings were not a surprise since it had made an advance announcement last Wednesday, after the company's stock price rose, presumably on speculation that the company would report a surprisingly strong quarter. After that announcement, the company's stock price retreated somewhat.
The quarterly results showed Hewlett-Packard making solid progress in its personal computer and corporate computer businesses. The two computer businesses were both sizable though weak when Hewlett-Packard completed its controversial purchase of Compaq Computer in May 2002.
During the quarter, the personal computer business grew 20 percent to US$6.2 billion, fueled by a 52 percent increase in the shipments of notebook computers, which were particularly strong in the consumer market. The personal computer division reported an operating profit of US$62 million for the quarter.
"Hewlett-Packard is clearly benefiting from the consumer market," said A.M. Sacconaghi, an analyst for Sanford C. Bernstein.
The company's enterprise systems business -- server computers, storage systems and software used in corporate data centers -- grew 5 percent, to US$3.9 billion. More important, the corporate business reported an operating profit of US$108 million for the quarter, in contrast to a loss of US$82 million in a year-ago period.
"We are systematically reducing the cost base of this business," Fiorina said.
The printer business is Hewlett-Packard's financial anchor, representing 30 percent of sales, but 70 percent of the company's operating profits. Revenues from that business increased 6 percent to US$5.9 billion as its operating profits rose 6 percent to US$968 million.
The modest growth rates in the crucial printer business prompted questions from analysts whether Dell, which began selling printers made by Lexmark last year, was eating into Hewlett-Packard's market share of more than 50 percent.
Fiorina dismissed the notion that Dell, which sold 2 million printers last year, poses much of a threat to Hewlett-Packard, which sells 1 million printers a week. "We continue to be very confident about our position in the printer business," she said.
The computer services business grew 6 percent to US$3.2 billion, but its operating profit of US$258 million was down from US$339 million in the quarter a year ago. The company said it was making investments in services, which reduced profits but should improve its performance in the long run.
But analysts said the decline in services profits was somewhat surprising.
"The weakness in services is a cloud," said Mark Stahlman, an analyst for Caris & Co. "The rest of the services sector isn't having the same problem."
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