Hewlett-Packard's PC business and software sales from its Mercury Interactive acquisition helped produce a net profit of $1.8 billion, for a 29 percent increase, with a 16 percent boost in revenue in the fiscal third quarter, according to financial results released Thursday.
HP's (NYSE:HPQ) profit was $0.66 per share, on revenue of $25.4 billion in the three months that ended July 31, up from $0.48 a share, on revenue of $21.9 billion in the same quarter last year. Profit in that quarter was $1.4 billion.
Revenue from its Personal Systems Group, primarily desktop and notebook computers sold to consumers, grew 29 percent to $8.9 billion. Revenue from the HP Software group boosted revenue 74 percent to $554 million, driven by sales from its $4.5 billion acquisition of Mercury Interactive in 2006. Mercury was not yet part of HP in last year's third quarter.
HP is growing its software portfolio further with the acquisition, announced July 23, of Opsware for $1.6 billion. Expected to be completed in the current quarter, the deal will be HP's third largest acquisition behind Mercury and the $19 billion acquisition of Compaq Computer in 2002.
HP CEO, Chairman, and President Mark Hurd credited cost discipline and lower component prices for some of the margin improvement, while CFO Kathy Lesjak said expenses grew at only one-third the rate of revenue growth.
Revenue from HP's Enterprise Server and Storage group grew 10 percent from a year earlier to $4.5 billion, while operating profit for that group rose to 10.2 percent of revenue, from 7.2 percent a year earlier. Hurd noted an 81 percent increase in revenue from HP's x86 blade servers. Storage revenue grew 6 percent as a 7 percent increase in disk storage technology was offset by a decline in tape storage revenue.
Lesjak said the company is raising its outlook for the current quarter, forecasting revenue between $27 billion and $27.2 billion. However, that revenue growth is up between 6 percent and 7 percent from the prior quarter, which is below HP's historical quarter-to-quarter growth of between 10 percent and 12 percent, Lesjak said.
The company's PC business has driven those galloping gains and may not be able to maintain the pace, she said.
"We do not believe it's prudent to set investor expectations that our [PC] business can continue to grow at three times the market rate," Lesjak said. Besides the 29 percent increase in personal computer revenue, HP saw notebook computer revenue rise by 54 percent and operating margins for the group reach 5.8 percent of revenue, versus 4 percent a year earlier.
Also tempering the forecast was increases in component prices, particularly the cost of memory, she said.
HP forecasts earnings of $0.80 to $0.81 cents per share, up 18 percent or 19 percent from the year-earlier quarter.
The third quarter results matched HP's second quarter performance of net income of $1.8 billion, or $0.65 a share, on revenue of $25.5 billion. The results also matched the consensus of analysts surveyed by Thomson Financial, who forecast $0.66 a share profit on revenue of $24.09 billion.
This story was updated on August 16, 2007