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HP's profit jumps 26% as revenue rises

Strong holiday-season sales of laptops and printers boost the firm's first-quarter results.

February 21, 2007|Michelle Quinn | Times Staff Writer

SAN FRANCISCO — Hewlett-Packard Co. reported a 26% jump in its fiscal first-quarter profit Tuesday, buoyed by strong sales of laptops, printers and other products during the holiday season.

The Palo Alto-based company posted net income of $1.55 billion, or 55 cents a share, up from $1.23 billion, or 42 cents, a year earlier. Revenue in the period ended Jan. 31 increased 11% to $25.1 billion.

Excluding one-time items, HP reported earnings of 65 cents a share, outpacing analysts' expectations of 62 cents. But investors were disappointed by a drop in the overall profit margin, which shrank to 7.3% from 7.7% in the previous three months.

The results were released after the close of regular trading. HP shares gained 36 cents to $43.13, near their six-year high of $43.53 reached Jan. 12. But the stock then lost 1% in after-hours trading.

"We had a good start of the year with a solid set of results," said HP Chief Executive Mark Hurd, who took over two years ago after Carly Fiorina's ouster.

HP's strong performance comes as Dell, the company's chief rival, tries to regain its footing by handing control back to founder Michael Dell this month and reshuffling top management. Hurd said he wouldn't let the company get caught up in a PC price war, but analysts expressed skepticism about HP's ability to handle the increasing pressure from Dell and Lenovo Group.

"Going forward, it's uncertain if they can continue the momentum," said Brent Bracelin, a senior research analyst at Pacific Crest Securities. "Dell was a wounded animal during the quarter. They are getting more aggressive on price. Lenovo was in a restructuring period."

HP is also still grappling with last fall's scandal in which it was revealed that the company had hired private investigators to spy on reporters and its own directors to find the source of leaks to the media. Amid the public furor, Chairwoman Patricia C. Dunn resigned, and the federal and state governments launched probes. A private investigator pleaded guilty on federal charges in January, and Dunn and three others face trial in California on state charges.

On Tuesday, two major HP shareholders said they supported a measure to let investors nominate board candidates. The California Public Employees' Retirement System and the California State Teachers' Retirement System said they would vote for a proposal at the company's annual meeting March 14. CalSTRS Chief Executive Jack Ehnes said the spying "shenanigans" demonstrated that HP's board was not accountable to shareholders.

The computer maker also failed last week to make Business Ethics magazine's annual list of the 100 Best Corporate Citizens after ranking in the top 10 for the last seven years.

Although the scandal has hurt HP's image among corporate governance advocates, HP's customers don't appear to have been scared away.

Excluding one-time items, HP reported earnings of 65 cents a share, outpacing analysts' expectations of 62 cents.

In the personal computer market, Dell has been losing ground to HP in the U.S. For the last two quarters, HP has led Dell in global PC shipments. In the three months ended Dec. 31, HP had 17.4% of the worldwide market compared with Dell's 13.9%, according to a report last month from Gartner Inc.

Sales of HP's personal notebooks were up 40% in the fiscal first quarter, Hurd said. The imaging and printing division, HP's most profitable business, saw its sales rise 7%.

HP's competitors are starting to fight back. Dell on Tuesday said it would create a website to solicit ideas for products and services.

And Eastman Kodak Co. has rolled out new photo printers, aiming to capture some of HP's share by charging more for the printers but less for the ink.

In another sign that the company is changing, HP announced that it would freeze its pension program for U.S. employees starting Jan. 1. The firm plans to instead offer extra incentives toward early retirement and to increase contributions to its 401(k) program.

"He thinks there's fat and inefficiency in the company they can find," said Carl Claunch, research vice president at Stamford, Conn.-based Gartner.

Bloomberg News was used in compiling this report.

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