Update: HP CEO Apotheker shows up for earnings call

The new CEO has plans to grow HP's software business; meanwhile, servers and storage business posts biggest gains

Speaking publicly for the first time since he was appointed CEO of Hewlett-Packard in late September, Leo Apotheker on Monday said that HP will focus more on software and that he still has some learning to do about the company.

Apotheker spoke during a brief conference call with journalists to discuss the company's quarterly earnings report, where HP reported fourth-quarter net revenue of $33.3 billion, up 8 percent from the same quarter last year. Net earnings for the quarter were $2.5 billion, up 5 percent over the same period in 2009.

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HP has explained Apotheker's silence over the past month by saying that he was on a tour visiting HP employees and customers. That tour appears to have kept him away from California, where he could have otherwise been subpoenaed by Oracle to appear in court. Oracle has charged SAP with stealing software during a time when Apotheker was CEO of SAP.

During the conference call, Apotheker said that he'd been meeting with employees and customers around the world "from California to Massachusetts and Germany to Singapore with many stops in between."

When one reporter asked where he was, Apotheker noted that was an odd question but answered that he was in Palo Alto, Calif., at HP's headquarters. "Would you like a picture?" he quipped.

Apotheker said he is excited about HP's prospects, but he has more work to do to learn about the company. "My top priority is to immerse myself deeper in the business," he said.

One area of growth he has already identified for HP is in software, which currently represents 3 percent of revenue for the company, he said. "But I think we can do a lot better," he said. "We feel that with software we can add a lot of value and strength to what we can do for our customers." HP would like to double or even triple the share of software revenue it brings in, he said.

It has options for growing its software business, including internal investments and acquisitions, he said.

In the fourth quarter, software revenue grew 1 percent year over year to $974 million, HP said.

Despite the emphasis on software, HP executives spent little time discussing WebOS, the mobile operating system it acquired along with Palm. HP continues to invest in WebOS, said Cathie Lesjak, HP's chief financial officer.

HP is continuing to invest in ways to boost its services revenue, but that hasn't paid off just yet. Services revenue increased just 0.4 percent to $9 billion for the quarter, it said. The business has been growing roughly in line with the market, and the company expects that with its investments and new offerings, its services business should grow at or above the market in the long term, she said.

Its storage and servers business did the best, with 25 percent growth in the quarter, reaching $5.3 billion in revenue. The personal systems group's revenue grew 4 percent to $10.3 billion in the quarter, and the imaging and printing group was up 8 percent to $7 billion.

Like other PC makers, HP may have been affected by the popularity of Apple's iPad. Total laptop revenue for HP was down 3 percent. "Softness" in consumer demand, particularly for low-end laptops, is to blame, Lesjak said. Low-cost netbook sales have been down overall, and some analysts blame a shift from netbooks to the iPad and the emerging tablet segment. Lesjak also said that problems in China, where HP had quality issues earlier this year, affected low-end laptop sales.

HP recently started selling a tablet based on Windows, and it has announced plans to launch a WebOS tablet early next year.

The company said it expects to keep increasing research and development spending and to boost its sales force to help fuel growth. It will also do a better job of rewarding employees by reinstituting salary increases in 2011 as part of the annual review process, Apotheker said.

The company upped its expectations for next year, based on confidence that it is performing well, Lesjak said. For the full year 2011, HP expects revenue in the range of $132 billion to $133.5 billion and full-year earnings per share of $5.16 to $5.22. It previously had forecast revenue of $131.5 billion to $133.5 billion and earnings of $5.05 to $5.15 a share.

Apotheker sounded prepared to move the company forward following a turbulent few months. Apotheker took the helm of HP after Mark Hurd, the former CEO, resigned in a sexual harassment scandal. He settled with the former HP contractor who lodged the complaint and went on to accept the role of co-president at HP rival Oracle. Shortly after, Oracle and its outspoken CEO, Larry Ellison, began lobbing attacks against Apotheker from the courthouse as part of the case against SAP.

Referring to Oracle, but not by name, Apotheker noted that "a competitor has tried to distract us and you to the good work being done across HP businesses. We have heard over and over these past weeks that what really matters to investors and employees and partners is business performance and growth."

Shares of HP stock's on the New York Stock Exchange (HPQ) were up $1.30 at $44.55 in after-hours trading late Monday.

Copyright © 2010 IDG Communications, Inc.

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