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HP Results Delight, What Recession?

Posted on Wednesday, Feb 20th 2008

Are we in a recession? HP says a resounding NO.

Hewlett Packard (NYSE: HPQ) joined Microsoft and IBM in producing excellent results. HP announced their first quarter results yesterday and beat all market expectations. With revenues of $28.5 Billion, they recorded a 13% growth over $25.1 Billion reported in the same period previous year. Sequentially the revenue was up marginally by 0.7% from $28.3 Billion for the previous quarter. The revenues were higher than market expectations of $27.6 Billion.

Sequentially, the earnings (Non GAAP) were flat at $0.86 per share. However, they were substantially higher than market expectations of $0.81 per share and 33% higher than last year’s $0.65 per share.

HP has been focusing on building its presence in emerging markets. This is evident in their current quarter results. 40% of the revenues were from US markets, 43% from EMEA (Europe, the Middle East and Africa) and 17% from Asia Pacific. In the previous year, the Americas contributed 41%, EMEA 43% and Asia Pacific 16%. Year on year, the highest growth was reported in the Asia Pacific segment with 22%, followed by EMEA growth of 15% and America’s 8%. [Read: HP Looks Recession Proof.]

Segment wise, Imaging and Printing (IPG) revenues of $7.3 billion were up 4% year-on-year and contributed 26% of the overall revenue. Personal Systems Group (PSG) brought in 38%, Services 15%, Enterprise Storage & Servers (ESS) 17% of the revenues. Financial Services and Software each contributed 2% to the revenue pie.

HP spent $3.3 billion on share repurchases in Q1 and expects similar volume of repurchases in the coming quarters.

In terms of outlook, HP expects annual revenues to be around $113.5 – $114 billion compared to market expectations of $112 billion. Sequentially, Q2 revenue outlook of $27.7 – $27.9 billion is higher than market expectations of $27.5 Billion.

With their view of unfavorable component pricing environment – especially in the memory segment, HP expects a lower Non GAAP EPS of $0.83 to $0.84 which is marginally higher than analyst view of $0.82. For the fiscal 2008, Non GAAP EPS outlook is at $3.50 to $3.54 higher than market expectations of $3.37.

In the extended hours trading session yesterday, the stock went up by 5%, and then settled down at $43.95 – 8 cents up from the previous close of $43.87. This morning, it is trading around $47.5, and has injected a huge dose of desperately sought positive momentum into the rest of the technology sector.


Despite a market cap of $113.1 Billion, HP has delivered returns comparable to small-cap growth stocks. It is impeccably managed, with tight cost controls and a well-thought through growth strategy. A true blue-chip that has regained its stride in a wonderful way.

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