HP shoots for sharp profit jump, looks to cloud

SAN FRANCISCO Mon Mar 14, 2011 8:15pm EDT

A logo of HP is seen outside Hewlett-Packard Belgian headquarters in Diegem, near Brussels, January 12, 2010. REUTERS/Thierry Roge

A logo of HP is seen outside Hewlett-Packard Belgian headquarters in Diegem, near Brussels, January 12, 2010.

Credit: Reuters/Thierry Roge

SAN FRANCISCO (Reuters) - Hewlett-Packard Co Chief Executive Leo Apotheker, outlining his vision for the company, promised to boost earnings and dividends sharply in coming years as it pushes aggressively into cloud computing.

Investors had been keen to hear his plans to enhance profitability at the sprawling computing giant, which is vying with International Business Machines Corp in technology services while going up against new rivals from Cisco Systems Inc to Oracle Corp.

In his first meeting with analysts and investors since taking over from the well-regarded Mark Hurd in November, the German executive said HP aims to raise quarterly dividends by 50 percent to 12 cents a share from May.

And HP plans to increase non-GAAP earnings per share to at least $7 a share by fiscal 2014, up 53 percent from last year.

Apotheker, who has seen HP's share price dwindle since Hurd left, is seen as under pressure to appease investors. The centerpiece of his presentation was a plan to expand into the highly competitive cloud computing market where services are hosted remotely in data centers.

HP will launch a "cloud marketplace" and an array of offerings for consumers, businesses and application developers, pitting the company against the likes of Amazon.com.

"This is a huge market," Apotheker said. "It is our customers who are pushing us to create this. There is a lot of demand for additional cloud services."

Creative Strategies Inc President Tim Bajarin said HP has the infrastructure and resources to compete in the market despite formidable competition.

"They're basically saying this is the cornerstone for their next level of growth," Bajarin said. "If any company can deliver a rich cloud service, it's HP."

Apotheker also said the webOS software HP acquired in last year's purchase of handheld pioneer Palm will be brought to a wider array of HP devices in the near future. HP can deliver 100 million webOS-capable devices a year, including tablets, printers and PCs, he said.

The webOS TouchPad, HP's answer to Apple Inc's iPad and part of its efforts to make inroads into fast-growing consumer businesses, will launch in June, Apotheker added.

LEO SPEAKS

Apotheker succeeded Hurd, ousted last August after the board said he filed inaccurate expense reports to conceal a "close personal relationship" with a female contractor -- something Hurd's representatives have disputed.

The former SAP AG chief has gotten off to a somewhat rocky start. HP's shares are down 10 percent since Hurd's exit, and the firm recently trimmed its revenue forecast.

The company has also been involved in a very public spat with one-time partner Oracle, which now ranks among its most vocal antagonists.

The German executive faces a number of challenges in coming years. HP remains a dominant player in major IT markets, including PCs, servers, services and printers, but its gross margin is roughly 24 percent, versus more than 40 percent for rival IBM.

Besides IBM, HP is confronting a number of newly aggressive

rivals intent on becoming one-stop shops for data center customers, including Cisco and Oracle.

Apotheker has vowed to rekindle innovation at HP, known more for cost-cutting under Hurd's leadership. On Monday, he said research spending has been outpacing revenue growth.

He is still something of a mystery to U.S. investors, but Apotheker has not been shy about putting his stamp on HP, a Silicon Valley icon that has seen more than its share of controversy over the past decade.

In January, HP shook up its much-criticized board, adding five new directors including former eBay Inc CEO Meg Whitman.

Shares of Palo Alto, California-based HP closed at $41.49 and rose to $41.80 in extended trading.

(Editing by Edwin Chan and Richard Chang)

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