Notebook sales drive HP net income to $1.5 billion

HP's second-quarter resuls beat analysts' forecasts.

Sales of notebook computers helped drive up HP's second-quarter net income to $1.5 billion from $1 billion in the same period of last year, the company said Tuesday.

HP recorded 51 cents earnings per share on revenue of $22.6 billion in the quarter that ended April 30, up from 33 cents a share on $21.6 billion revenue in last year's second quarter. Tuesday's financial report beat analyst forecasts of 49 cents per share on revenue of $22.6 billion from Thomson Financial.

Excluding certain items, HP had operating profit of $1.8 billion, or 54 cents a share, up from $1.3 billion, or 37 cents a share, in the same quarter last year.

The company estimates its third-quarter revenue will be about $21.8 billion, and about $91 billion for its full fiscal year, in line with current analyst consensus expectations.

HP's notebook revenue rose 27% over the second quarter of last year, with desktop revenue up 1%. The Personal Systems Group, which includes notebooks and desktops, had operating profit of $248 million, up from $147 million in the same period of last year. Software revenue rose 20% year-over-year, to $330 million.

HP's earnings come on the heels of a warning from PC rival Dell last week. Dell lowered its first-quarter forecast to revenue of $14.2 billion, compared to its earlier forecast of $14.2 billion to $14.6 billion. Earnings per share are now expected to be 33 cents, compared to the earlier forecast of 36 cents to 38 cents. Dell will release its quarterly earnings Thursday. Although Dell still ships the most PCs worldwide, it lost market share to HP this year, according to IDC analysts.

"The quarter represented another solid quarter in a multiyear plan," said Mark Hurd, HP CEO and president, during an earnings conference call.

Hurd, who took the helm at HP in April of last year following the February ousting of Carly Fiorina, has embarked on a massive restructuring that involves major consolidation of its data centers and IT sites worldwide and thousands of layoffs.

Hurd said HP cut 1,600 jobs this quarter, bringing the total cuts so far as part of its restructuring to 8,100, which is a little more than half the total number expected. The majority of the remaining job cuts will come out of Europe, Hurd said.

Meanwhile, HP plans to hire hundreds of enterprise sales workers in the coming quarters, Hurd said.

Revenue for HP's crown jewel, its Imaging and Printing business, grew 5% to $6.7 billion, driven by a 10% increase in printing supplies sales, which offset an 8% dip in consumer hardware sales from the same year-ago period. Operating profit for the group reached $1 billion from $814 million in the year-ago quarter.

HP's Enterprise Storage and Servers unit's revenue was up 2% to $4.3 billion, led by a 60% revenue jump in blade server sales. Operating profit rose to $322 million from $180 million from the year-ago quarter.

Software revenue rose 20% year-over-year, to $330 million. Operating profit was $3 million, compared to a loss of $2 million.

But services revenue dipped 2% to $3.9 billion. Operating profit, however, rose to $345 million from $292 million.

Geographically, HP's revenue rose in the Americas and in Asia Pacific regions, offsetting a 2% revenue decline in Europe, the Middle East and Africa. Hurd described Europe as a "mixed bag," with good growth in Eastern Europe offsetting flat growth in Western Europe.

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Copyright © 2006 IDG Communications, Inc.