HP profits up 28% on freshened servers

Software down a smidge

HP Software had $871m in sales, down a point, with business technology optimization products (mostly OpenView, Mercury, and Opsware products) up 2.8 per cent, to $584m, but other software sales falling 8 per cent, to $287m. Operating profit for HP Software came to $162m, up a few points from a year ago.

When you add it all up, HP's Enterprise Business posted $14.1bn in revenues in fiscal Q2. HP's ProCurve networking business is still in the Corporate Investment segment of the company, and sales rose by 31 per cent. Including $50m in revenues from 3Com (two weeks of the quarter), networking revenues rose by 58 per cent. Lesjak said that for the remainder of the year, ProCurve and 3Com products would be in this separate category, but beginning in fiscal 2011, all switching products would be dumped in with servers and storage to create the Enterprise Server, Storage, and Networking group.

That leaves PCs and printers for most of the remainder of the HP business.

HP's Personal Systems Group raked in $9.96bn in revenues in the quarter, up 21.3 per cent. Notebook sales were $5.51bn (up 17.1 per cent), desktop sales were $3.79bn (up 27.2 per cent), and workstation sales were $423m (up 47.4 percent). Hurd said that financial services companies bought a lot of high-end workstations, and that HP has said all along that when the PC recovery comes, it will start with consumers, then move to SMBs, and then reach corporates.

In Q2, consumer PC sales rose by 25 per cent, while corporate PC sales was up only 19 per cent - helped mightily by those workstations. Operating profits in PSG came to $465m, up 23 per cent from the year ago quarter. It is difficult to cut costs in the PC racket, particularly when there are supply constraints for PC components.

As has been the case for the past several decades, the Image and Printing Group is the profit engine at HP, with sales of $6.4bn, up 8.1 per cent compared to Q2 of fiscal 2009. HP can't build enough laser printers to meet demand, as was the case in the first quarter, Hurd admitted, and the company is hoping to get the backlog built and sold this quarter.

Printer unit shipments rose by 9 per cent in the quarter, with consumer printer shipments up 15 per cent but corporate printer shipments dropping 8 per cent. IPG sales to consumers came to $717m, up 15.6 per cent, tracking shipments, and revenues to companies buying printers, scanners, and other imaging products hit $1.35bn, rising 13 per cent despite unit shipment declines. HP doesn't need to print money. It just makes the ink that is as good as money, and supplies revenues for printers (including ink and paper) came to $4.33bn, up 5.6 per cent.

HP Financial Services, which provides financing for all of HP's products, is tracked separately, and it booked $755m in revenues (up 17.8 per cent), with $69m in operating margins (up 49 per cent).

Looking ahead to the rest of fiscal 2010, HP once again raised its revenue guidance, now saying it will see an 8 to 9 per cent bump in sales for the full year, but the $1.2bn acquisition of Palm would drop earnings per share, with non-GAAP EPS growing only 16 to 17 per cent to between $4.45 to $4.50 and after acquisition and other costs are worked in, EPS would be $3.76 to $3.81. In the third quarter, HP expects sales to be in the range of $29.7bn to $30bn, with EPS of between 87 and 89 cents. ®