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HP paddles through Q3 slump on EDS lifeboat

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The economy is still rough waters for tech companies, but Hewlett-Packard has again kept afloat by latching on services while tossing employees overboard.

Despite sharply declining sales of PCs, printers and software, HP's third quarter ended July 31, 2009 still arrived above most Wall Street expectations. The company's profit was $1.64bn, down 19 per cent from the same period last year. Excluding one-time items related to restructuring and acquisitions, the company would have earned $2.2bn.

Net revenue was $27.5bn, down two per cent compared to the same period last year. Of all HP's major businesses, only services had revenue growth year-over-year - largely due to the company's acquisition of EDS last year.

Broken down, HP's enterprise business sunk 23 per cent to $3.7bn, with enterprise storage and server both dropping 21 per cent respectively. Software revenue declined 22 per cent to $847m and HP's printer biz took a 20 per cent slide to $5.7bn.

The otherwise slumpy quarter was offset by HP's services unit which increased 93 per cent to $8.5 million. But as mentioned, that's primarily a result of the EDS acquisition.

Slow sales were further dulled by HP's continuing layoffs and salary cuts. In May, the company announced plans to axe 2 per cent of its 300,000-person workforce on top of 24,000 cuts planned during the acquisition of EDS. The company has also implemented across-the-board wage reductions to employees and tightened its belt on spending.

"Business is stabilizing, and we are confident that HP will be an early beneficiary of an economic turnaround and will continue to outperform when conditions improve," chief executive Mark Hurd said in a statement. He elaborated later in an analyst conference call that while he's encouraged by stability in the market, he's not ready to call it a turn around until the company gets a better idea of business spending in 2010.

"We expect 2010 will be a better year than 2009." Hurd told analysts.

The company expects 2009 fourth quarter revenue to be up about eight per cent sequentially. End-of-year revenue is predicted to land around four to five per cent below 2008's revenue total of $118.4bn. ®

Bootnote

While HP's current CEO was holding back on the turn-around talk, his predecessor Carly Fiorina took her first formal steps towards challenging California Democrat Barbara Boxer for the US Senate in 2010.

Fiorina has filed papers with the IRS for a tax-identification number that will allow her to open an account for campaign funds. If nominated for the Republican ticket in next year's election, she'll face Boxer who is seeking a fourth term in office.

"The people of California have serious concerns about job creation, economic growth and the role of government in solving problems that thouch each of our lives," Fiorina said in a statement.

The staunch Republican had been named as a potential running mate for John McCain before the presidential hopeful chose Alaska governor Sarah Palin. Fiorina went on to help lead the McCain campaign to a glorious defeat.

That successful foray into Republican-party politics followed a book tour after she was shown the door at HP in 2005 for engineering the unpopular $24bn merger with Compaq and generally acting like a celebrity. ®

The smart choice: opportunity from uncertainty

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