Hewlett-Packard Net Jumps 26% in the Quarter
Staff , Gainesville Sun
Notebook computers flew off shelves over the holidays, helping to bolster Hewlett-Packard’s lead atop the PC heap.
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The Gainesville Sun
SAN FRANCISCO, Feb. 20 — Notebook computers flew off shelves over the holidays, helping to propel Hewlett-Packard’s first-quarter net profit 26 percent higher and to bolster its lead atop the PC heap.

The company said Tuesday that net income for the quarter ended Jan. 31 was $1.5 billion, or 55 cents a share, compared with $1.2 billion, or 42 cents, a year earlier. Revenue increased 11 percent, to $25.1 billion from $22.7 billion.

While net income was higher than expected, investors were not satisfied. Shares dropped in after-hours trading to $42.57 after closing up 36 cents, to $40.13, in regular trading. Wall Street analysts were concerned about signs of rising inventories across the company, something executives said they had under control.

The bright spot for the quarter was in personal computers. Revenue for the PC unit jumped 17 percent, to $8.7 billion. Mark V. Hurd, chairman and chief executive, told analysts that Hewlett-Packard’s computer sales were growing at three times the rate of the industry as a whole.

Mr. Hurd also cited the imaging and printing division, whose revenue grew 7 percent, to $7 billion. Operating profit was $1.1 billion, or 15.3 percent of revenue. “A lot of people were focused on PCs, but 18 percent unit growth is an astounding number,” Mr. Hurd said of the printing business.

Some analysts said that while the sales of the company’s PC unit were unusually strong, it covered weakness in other units. Removing sales from the newly acquired Mercury Interactive unit and adjusting for currency fluctuations, the company revenue grew about 6 percent, said A. M. Sacconaghi, an analyst with Sanford C. Bernstein & Company.

Without the computer sales, he said, the company’s organic growth was only about 2 percent. “That’s a pretty anemic performance,” Mr. Sacconaghi said. “PCs were bailing out what was, quite frankly, a rather mediocre performance.”

Other analysts preferred to focus on the margin growth gained in every unit. “In each of their businesses there was an opportunity for them to take advantage of, and in most cases they did,” said Laura Conigliaro of Goldman Sachs. Sales of notebook computers, which sell at higher prices and higher profit margins than desktops, rose 40 percent in the quarter.

Even in its sales to large companies, which have been reluctant to spend on information technology, the company said operating profit margins rose to 9.3 percent from 7.7 percent a year ago. Overall revenue grew 5 percent, helped mainly by a 45 percent increase in revenue from its blade servers.

Analysts say that PC makers, and particularly Hewlett-Packard, could have a good year because profit margins are expected to remain strong. The new Vista operating system from Microsoft demands more memory, so computer makers are able to sell more fully featured PCs at a higher price and a higher margin.

Mr. Hurd minimized the impact on sales of the introduction of Vista. “We were not forecasting any Vista moment,” Mr. Hurd said. The company predicted a 6 percent increase in PC revenue this year.

It expects revenue for the company to increase 8.6 percent, to $24.5 billion, in the current quarter. It is also forecasting revenue of $99 billion for the entire fiscal year, up 8 percent from 2006. The new forecast is $2 billion more than it was previously forecasting.

Hewlett-Packard said that it expected net income in the current quarter to rise 13.7 percent and net income for the full year to increase 10 percent.

Hewlett-Packard said it was curtailing further contributions to its defined-benefits plan. In its place, the company will increase to 6 percent from 4 percent the amount it matches on employee contributions to a 401(k) retirement fund. The new program will go into effect on Jan. 1, 2008.

The company is also offering early retirement to those in the defined-benefits plan, but Mr. Hurd said the change to the plan was not intended to reduce the number of employees but to bring the plan in line with the rest of the technology industry.

$5 Million for Former Dell Chief

DALLAS, Feb. 20 (AP) — Dell Inc., the computer maker, said on Tuesday that it would pay its former chief executive, Kevin B. Rollins, a severance package including $5 million in cash over the next two years, the computer maker disclosed Tuesday.

Mr. Rollins stepped down Jan. 31 and was replaced by the founder, Michael S. Dell. He also gave up his director’s seat and will leave the company May 4, the company said in a regulatory filing. Mr. Rollins signed a separation agreement Feb. 13.