HP posts declines in all groups but EDS

HP posts declines in all groups but EDS

Despite declines nearly across the board, Hewlett-Packard just barely managed an increase in revenue for the first quarter of 2009, which ended Jan. 31, the company announced Wednesday.

Net revenue for the quarter reached US$28.8 billion, up 1 percent compared to the same period last year.

Net income was $1.9 billion, or $0.75 earnings per share, down from $2.1 billion, or $0.80 earnings per share. On a pro forma basis, which excludes certain one-time items, net income came in at $2.3 billion, the same as in the first quarter of 2008, although earnings per share rose to $0.93 from $0.86.

Without strong growth in its Services group, HP would have fared much worse. Revenue for that group grew 116 percent to $8.7 billion, primarily due to HP's acquisition of EDS. The Services group accounted for about one-third of the company's profit, said Cathie Lesjak, HP's CFO, during a conference call to discuss the earnings.

HP is progressing ahead of schedule with its EDS integration plan and by the end of the first quarter had cut 9,000 of the nearly 25,000 jobs that it expected to cut as part of the deal, said Mark Hurd, chairman and CEO at HP.

Even though HP doesn't expect the economy to improve soon, it does think demand for its services will remain strong. "In many cases, the services market sometimes moves counter-cyclical to the economy," Hurd said. That's because while companies struggle, they sometimes turn to services as a way to save costs in the short term.

Another misfortune may also be helping HP. The problems at Satyam, the IT services company whose founder and other leading executives resigned recently after admitting to inflating profits, have perhaps created some more interest in HP's service offerings, Hurd said.

Revenue from HP's Personal Systems Group, which includes computers, declined 19 percent compared to the previous year to $8.8 billion. Unit shipments were down 4 percent. Desktop revenue plummeted 25 percent while notebook revenue declined 13 percent.

Its Enterprise Storage and Servers group reported revenue down 18 percent to $3.9 billion compared to the same period a year earlier.

Some companies may have bought a lower-level, less expensive server while in the past they would have bought a higher-end server, Hurd said. "People are trying to buy as little as they can buy in the context of getting what needs to get done," he said.

But companies also are putting off buying decisions, and that will probably create opportunities in the future, Hurd said. He hopes to position HP to take advantage of a potential future boom in pent-up buying.

The Imaging and Printing Group also declined, with revenue down 19 percent to $6.0 billion. Within that group, printer unit shipments decreased 33 percent as people put off buying new printers, Hurd said. Sales of printer supplies were down too. "When you don't have a job, you aren't printing as much," he said.

HP Software revenue was down 7 percent to $878 million and HP Financial Services revenue decreased 1 percent to $636 million.

The company has further ideas for cutting costs as the economy continues to struggle. It has significantly reduced travel expenses and is reducing employee base pay and benefits, Lesjak said.

The results were lower than HP said it expected when it reported its previous quarter earnings in November. At that time, it said revenue for the quarter ending in January should reach between $32 billion and $32.5 billion, with earnings per share in the range of $0.80 to $0.82.

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