HP Demonstrates Strength

Hewlett-Packard announced strong fourth quarter and fiscal year 2008 results driven by terrific cost control and strength in the HP Services segment, which was helped by the EDS acquisition.

For the full fiscal year 2008, revenue was up 13% to $118.4 billion. Profit was $10.5 billion or $3.25 per share. Non-GAAP profit was $11.8 billion, or $3.62 per share. Cash flow from operations was up 52% to $14.6 billion.

Fourth quarter revenue grew 19% to $33.6 billion versus analyst estimates of $33.3 billion. Excluding revenue from its acquisition of Electronic Data Systems completed on August 26, net revenue grew 5%. Profit was up 4% to $2.7 billion or $0.84 per share. Non-GAAP profit was up 21% to $3.4 billion or $1.03 per share versus the Street estimate of $1.01 per share.

Fourth quarter gross margin was 22.9%, down from 24.7% last year, driven mainly by the acquisition of EDS. Non-GAAP operating expenses down 2 percentage points to $4.3 billion or 12.8% of revenue. Cash flow from operations was $3.3 billion. It repurchased shares for $1.9 billion and ended the quarter with $9.1 billion in the current share repurchase authorization. It paid quarterly dividends of $196 million. Total gross cash was $10.3 billion and total debt at the end of the quarter was $17.9 billion.

International sales continued to account for 68% of revenue with revenue in the BRIC countries (Brazil, Russia, India and China) growing 23% and accounting for 9% of total revenue. Revenue from the Americas grew 17% to $14.0 billion, EMEA grew 22% to $14.1 billion and Asia Pacific grew 14% to $5.5 billion.

By segment, Personal Systems Group (PSG) revenue grew 10% to $11.2 billion, driven by 21% growth in Notebook revenue (the company recently announced tx2, a multi-touch enabled laptop). However, Desktop revenue declined by 2%.

Imaging and Printing Group (IPG) revenue declined 1% to $7.5 billion and printer unit shipments decreased 8%.

Enterprise Storage and Servers (ESS) revenue was down 1% to $5.1 billion. Storage revenue grew 13% led by 16% growth in the midrange EVA and 9% growth in the high-end XP products. Industry Standard Server revenue declined 3% and Business Critical Systems revenue declined 10% while ESS blade revenue increased 43%.

HP Services (HPS) revenue increased 99% to $8.6 billion, led by $3.9 billion revenue from EDS. Excluding EDS, HPS revenue grew 10% with Technology growing 10%, Outsourcing 15%, and both Consulting and Integration growing 2%.

HP Software revenue grew 13% to $855 million, led by 15% growth in the Business Technology Optimization portfolio. HP Financial Services (HPFS) revenue was $691 million, up 5%.

Based on its performance and current economic conditions, HP expects revenue of about $32.0 to $32.5 billion, GAAP diluted EPS of $0.80 to $0.82, and non-GAAP diluted EPS of $0.93 to $0.95 for Q109. Analysts estimate EPS of $0.91 on sales of $32.8 billion.

For the full fiscal year 2009, HP expects revenue of about $127.5 to $130.0 billion, GAAP diluted EPS of $3.38 to $3.53, and non-GAAP diluted EPS of $3.88 to $4.03. Analysts expect earnings of $3.80 per share on sales of $130.6 billion.

CEO Mike Hurd says, “Great companies excel in tough times, and in tough times, customers turn to great companies. I’m confident in HP’s ability to gain share, expand earnings and emerge from the current environment as a stronger force in the marketplace.”

HP is currently trading around $36 with a market cap of about $87 billion. It hit a 52-week low of $28.23 on November 13. I continue to be amazed by Mark Hurd’s leadership.