Notebook Sales Turbocharge HP’s Q4 Profits

When they sit at the dinner table Thursday, HP investors might want to utter a little “thank you” to HP chairman and CEO Mark Hurd.

Under Hurd’s guidance, HP has positioned itself for success. It proved the point this week when it revealed its fourth-quarter results.

The San Jose, Calif., company beat Wall Street predictions by achieving fiscal 2007 net revenue of US$104 billion, some $12.6 billion more than 2006.

For the quarter, net revenue came in at $28.3 billion, up 15 percent — about $3.7 billion — from a year earlier, and up 11 percent when adjusted for the effects of currency, said the company. HP’s Q4 GAAP (generally accepted accounting principles) operating profit was $2.6 billion and GAAP diluted earnings per share was 81 cents, up from 60 cents when compared with Q4 of 2006.

Across-the-Board Happy

Hurd cited strong performance in most of HP’s areas of business and pointed to sharp improvement in the company’s software segment, where revenue doubled over the prior year, coming in at $698 million, and where operating profit was $177 million.

HP’s personal systems group (PSG) enjoyed a 30 percent year-over-year growth in revenue to $10.1 billion as unit shipments grew 31 percent during the year. Profit was $589 million, up from $336 million in 2006.

Notebook revenue for the quarter grew 49 percent over the prior-year period, while desktop revenue grew 15 percent, the company said. PSG’s growth in China came in at more than 100 percent on the year, the company noted.

HP raked in $1.1 billion in profit from its imaging and printing group, the same as 2006, and $693 million in profit from its enterprise storage and servers unit, up from $502 million reported last year.

A Righted Ship

While proud of the company’s achievements, Hurd said he is not about to rest on his laurels. “As a company, we are executing the plans we have laid out and delivering on our commitments to our customers, partners and investors,” he said. “We are effectively balancing growth, investments and cost reduction initiatives. While our fourth quarter results show marked improvement we still have work to do and investments to make.”

Hurd deserves a lot of credit for the job he’s done since he replaced Carly Fiorina in early 2005, said Enderle Group Principal Analyst Rob Enderle. At the time, HP seemed to be in trouble as earnings were below expectations and Fiorina butted heads with the board of directors.

“Overall, these are really good results and a lot of it goes back to Mark Hurd,” Enderle told the E-Commerce Times. “He’s done a really good job of running the company, a very complex company. He is one of the best CEOs we’ve got running a big firm. He’s doing a really nice job of keeping everybody focused on the business.”

To the Ends of the Earth

The company “delivered a strong fourth quarter to close out a solid fiscal year” and saw “balanced growth across all regions,” Hurd said. The good financial results came while HP continued investing in its long-term strategic initiatives designed to strengthen competitiveness and efficiency, Hurd said.

HP closed 10 acquisitions during the year and recently announced three more, Hurd said. He also pointed to the improvements in HP’s technology solutions group, which grew revenue 12 percent and profit 31 percent on the year.

“This performance generated $1.4 billion of operating profit representing approximately half the company’s profit for the quarter,” said Hurd.

The company should “continue to benefit as demand shifts towards mobility, the consumer and emerging geographies such as Southeast Asia and Latin America,” he said, noting HP products are now being sold in more than 400 cities in China.

HP estimates its Q1 2008 revenue will be $27.4 billion to $27.5 billion and its Q1 GAAP earnings per share will be 75 cents.

Think Globally, Act Globally

Referring to personal computers and printers, Pund-IT principal analyst Charles King pointed out that HP is “deriving a vast majority of its revenue from two areas where IBM doesn’t even compete anymore.”

Overall, it was a “great quarter for HP,” King told the E-Commerce Times. “I think it shows the company’s doing very well increasing its PC lead. What I thought was particularly interesting is the majority of growth is coming from Asia, the Pacific Rim and the European markets.”

That proves the necessity for American IT companies to think big, King said. “I think it demonstrates the importance for IT vendors in expanding their efforts into global markets rather than depending on a slowing U.S. market.”