Update: HP Q2 revenue up 12 percent

Gains seen in hardware, software, services, imaging and printing

Spurred by strong sales in its personal systems and software groups, Hewlett-Packard Co. on Tuesday reported revenue of  $20.1 billion and net earnings of $884 million for the second quarter of its fiscal 2004 year, which ended April 30.

The company's $884 million in net earnings, calculated in compliance with generally accepted accounting principles (GAAP), amounted to $0.29 per share, an increase of 32 percent from the $0.22 per share reported in the year-ago quarter.

Revenue for the quarter was up by 12 percent from the $18 billion the company reported in 2003's second quarter, surpassing $20 billion for the first time in the company's history, according to HP.

The company experienced "record second quarter revenue in PCs, enterprise hardware, software, services and imaging and printing," said HP CEO Carly Fiorina in a statement.

The company's Imaging and Printing division continued to be the company's most profitable, reporting an operating profit of $953 million on revenue of $6.1 billion. Revenue from printer supplies was up 15 percent for the quarter, driven to a large extent by the adoption of color printing in the workplace, Fiorina said in a conference call with analysts on Tuesday. "Color is now going mainstream," she said.

HP's other sources of revenue, the Personal Systems Group and the enterprise-focused Technology Solutions Group, reported revenues of $6.0 billion and $7.7 billion respectively.

While revenue from HP's desktop and notebook products grew at 14 percent and 26 percent respectively, the Personal Systems Group managed to report an operating profit of only $45 million for the quarter, far less than the $400 million reported by the Technology Solutions Group.

Software was the fastest growing segment of the Technology Solutions Group. Led by an increase in sales of HP's OpenCall and OpenView products, the software division's revenue grew by 23 percent year-over-year.

Sales of HP servers based on Intel Corp. architecture processors were also strong, Fiorina said, with unit sales growing by 32 percent for the quarter. But because of extremely competitive pricing in this segment, revenue for the Intel-based servers grew by 15 percent, she said.

Revenue from the company's Integrity servers, which are based on Intel's Itanium microprocessors, was double that of the first quarter of 2004, Fiorina said, and they amounted to 16 percent of the sales and 26 percent of units shipped by the group's Business Critical Systems division, which also ships HP's AlphaServer, HP 9000 and NonStop systems.

"Itanium now is beginning to ramp fairly nicely," Fiorina said.

HP's storage revenue, however, was down by 1 percent for the quarter. Sales of the company's tape products declined during the period, Fiorina said.

Revenue from sales in Europe and the Asia-Pacific region grew more rapidly than U.S. sales, which grew at 4 percent year-over-year to $8.4 billion for the quarter. European revenue amounted to $8.3 billion, an increase of 17 percent, and Asia-Pacific revenue grew 22 percent to $2.4 billion.

Fiorina said HP did not foresee a drastic increase in U.S. IT spending in the year ahead. "We think IT budgets in the U.S. in the enterprise space are probably going to grow 1 to 2 percent this year," she said.

HP added 3,600 employees to its payroll during the quarter, with 2,100 of the additions resulting from the acquisition of German IT service provider Triaton GmbH. The majority of HP's new hires were in the services division, HP said.

HP services revenue grew 15 percent from the second quarter of 2003, contributing $3.5 billion in revenue to the Technology Solutions Group.

HP's earnings were generally in line with analyst expectations. A survey of 22 financial analysts by Thomson First Call found that HP's non-GAAP earnings per share were expected to be $0.34, which was what HP reported by that measure. Analysts had expected the company to report revenue of $19.3 billion, and HP actually reported $800 million more than that.

HP shares (HPQ) were up nearly 4 percent in after-hours trading, reaching $20.75 per share on the Inet ATS Inc. exchange Tuesday.

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