Services Help Push HP Q4 Profit Up 14 Percent

Hewlett-Packard on Monday reported strong fourth- quarter earnings that helped lift profits for the entire year, but revenue dropped across its hardware and software lines. HP Chairman and CEO Mark Hurd said the company should show strong gains next year.

For its fourth quarter of fiscal year 2009, which ended on Oct. 31, HP reported revenue of $30.8 billion, down about 8 percent compared with the $33.6 billion the company reported for the same quarter last year.

HP also reported earnings in the fourth quarter of $2.4 billion, or 99 cents per share, up a strong 14 percent over the $2.1 billion, or 84 cents per share, it reported last year.

For all of fiscal 2009, HP reported revenue of $114.6 billion, down 3 percent compared with fiscal 2008. The company also reported earnings of $7.7 billion, or $3.14 per share, down 8 percent from the $8.3 billion, or $3.25 per share, it reported for fiscal 2008.

Despite an increase in HP's fourth-quarter 2009 services and financial services revenue, total revenue for the quarter fell due to the drop in hardware and software sales.

HP said services revenue increased in the fourth quarter to $8.9 billion, up 8 percent compared with last year due to the integration of its EDS acquisition being ahead of schedule, which led to strong momentum in signings and new wins.

HP acquired professional services provider EDS just over a year ago in a deal worth nearly $14 billion.

HP Financial Services reported revenue of $726 million, up 5 percent compared with last year.

However, HP's Enterprise Storage and Servers (ESS) business unit reported total revenue of $4.2 billion, down 17 percent compared with last year. This included a 20 percent drop in storage revenue, led by a 23 percent drop in sales of the company's EVA midrange storage line. HP's industry standard server revenue fell 10 percent, business critical server revenue fell 33 percent and blade server revenue fell 8 percent.

The company's Personal Systems Group (PSG) revenue dropped 12 percent from last year to $9.9 billion, despite an increase in total shipments of 8 percent. This included an 8 percent drop in notebook PC revenue and a drop in desktop PC revenue of 16 percent.

HP's Imaging and Printing Group (IPG) revenue fell 15 percent to $6.5 billion, with supplies revenue down 8 percent, commercial printer revenue down 32 percent and consumer printer revenue down 17 percent.

Hurd said printer sales are expected to grow by double digits during the first quarter compared with the fourth quarter, and customer acceptance of new server and PC hardware is growing as well.

"We are in a healthy position to gain from the Windows 7 upgrade," Hurd said.

Also expected to push HP's sales is the pending acquisition of networking vendor 3Com, Hurd said. The acquisition will help drive networking sales in China and the rest of the world, he said.

3Com will help increase HP's overall networking and security business and let HP leverage the convergence in server, storage and networking technologies, Hurd said.

"As technology converges, and ultimately is delivered as a service, nobody is better able than HP to take advantage of it," he said.

Cathie Lesjak, executive vice president and CFO of HP, said that commodity prices rose during the fourth quarter and will probably do so in the first fiscal quarter of 2010, impacting HP's costs. However, Lesjak said, that is a normal occurrence during a recession as suppliers respond to an economic downturn by taking supplies out of the market.

Looking forward, HP expects revenue for its first fiscal quarter of 2010 to be between $29.6 billion and $29.9 billion. For all of fiscal 2010, HP expects revenue to between $118.0 billion and $119 billion, with earnings per share to be between $3.65 and $3.75.