HP Q4 revenue up, profits fall on layoff charges

HP's fourth-quarter revenue rose on strong growth in PC and server shipments, but restructuring charges and a decline in revenue from consumer printers hurt its profitability for the quarter.

"[The results] reflect good execution across our businesses, with solid revenue growth, good cost control and margin expansion in many key areas," said CEO Mark Hurd, on a conference call with reporters after the release of HP's earnings.

Revenue was $22.9 billion, up 7% from revenue of $21.4 billion in last year's fourth quarter and ahead of analyst estimates of $22.8 billion compiled by Thomson First Call. Revenue from storage and servers was up 10%, while revenue from the company's PC group was up 9%.

According to generally accepted accounting principles (GAAP), HP's fourth-quarter net income was $416 million, down 62% from net income of $1.1 billion last year. This quarter's net income includes the effect of $1.1 billion in charges related to a broad restructuring program put in place by HP management in July and other factors. Excluding those charges, net income for the quarter, which ended Oct. 31, was $1.5 billion, compared to net income excluding charges of $1.2 billion last year.

HP has increased the number of layoffs enacted during that plan to 15,300, said Bob Wayman, HP's CFO, on a later conference call with financial analysts. The company had originally expected to cut 14,500 jobs, but saw the need for additional layoffs as it proceeded with its plan, Hurd said.

The majority of the cost savings that HP cited as the catalyst for the layoffs will not kick in until the company's next fiscal year as all of the affected employees leave the company, Wayman said.

On the product side, the Enterprise Storage and Servers (ESS) group was led by a 12% increase in revenue generated by HP's servers based on Intel's Xeon processors and Advanced Micro Devices' Opteron processors. Blade server revenue was up 65%, while revenue from HP's Integrity servers was up 70%, Hurd said. The Palo Alto company's storage business also improved, posting 17% growth in revenue.

Overall, the ESS group recorded $4.5 billion in revenue and an operating profit of $405 million. The profitability of this group has swayed back and forth in recent years, but this quarter operating profit was up from $100 million last year.

HP's PC group was led by the performance of its notebook products, which produced a 23% improvement in revenue over last year. Desktop revenue increased by only 1%. The entire group recorded revenue of $7.1 billion and an operating profit of $200 million, up sharply from the $77 million in operating profit posted last year.

As he did several times this year, Hurd made a point of emphasizing HP's commitment to the PC business. Some financial analysts have called for HP to exit the PC business to focus on its enterprise businesses, but Hurd is standing firm as he finishes his second quarter with the company.

"This business is core to HP and it’s satisfying to see that steady improvements have been achieved over each of the past four years," Hurd said.

The IDG News Service is a Network World affiliate.