New HP Meets Goals, Maintains Outlook for Q4

The technology giant reported third-quarter financial results that met earnings targets, despite sagging revenue of $16.5 billion for the quarter, compared to $18.2 billion on a combined company basis for the prior quarter. The Wall Street consensus estimate was $16.7 billion in revenue and earnings of 14 cents a share, excluding extraordinary items. HP reported a profit of $420 million, or 14 cents a share, excluding a number of items. However, including merger-related charges such as a $1.6 billion restructuring charge, HP reported a net loss of $2 billion or 67 cents per share.

Perhaps most importantly, HP said the merger integration with Compaq was going well and ahead of schedule in some areas.

"Throughout our first 100 days, we've kept our eye on the ball," said Carly Fiorina, HP chairman and CEO, during the conference call. "We're hitting all our integration milestones and are on track to meet our second-half targets."

HP officials said they expect revenue to improve for the fourth quarter and re-affirmed their outlook. The company expects fourth quarter earnings of 22 cents a share on revenue of $17.44 billion, which is in line with most analyst forecasts. In addition, HP saw major growth in its imaging and printing business as well as its managed services business, Fiorina said.

Still, while the merger left HP as the number one PC maker in the world, the new company's PC and enterprise results were poor. Consumer PC revenue was down 31 percent sequentially, and enterprise systems were down 22 percent year over year. HP also announced that it is scaling back on its software business, which had a small market presence, including discontinuing the HP application server product line.

"We knew we were going to do some radical surgery on the software business," said HP President Michael Capellas.

HP is also facing increased competition from Dell in the PC and printer business, EMC in storage, and IBM in enterprise systems and services. HP officials downplayed the competition.

"Competitors are just now coming to grips with their own strategic and business model shifts," Fiorina said, possibly hinting at Dell's recent shift from its direct model to its new White Box initiative for the channel. Fiorina also said IBM's acquisition of PricewaterhouseCoopers, which HP itself had nearly bought, will actually lead to more business for HP rather than less. Capellas said he believed HP grew or maintained share in the storage market against chief rival EMC.

Fiorina said she expects the company to meet all its merger goals in the next quarter, which includes layoffs and restructuring. HP cut nearly 5,000 employees recently and plans to reduce its workforce by 10,000 more employees by the end of the year. Still, Fiorina was optimistic about the ongoing merger, which many critics said was too cumbersome to pull off.

"The good news is, there hasn't been a lot of surprises," Fiorina said. Capellas said he was confident that the merger would continue to go smoothly and fight off competitors. "We're taking the fight to the street," Capellas said. "We're going to push forward."