HP shares rise as profit beats Street targets

SAN FRANCISCO (Reuters) - Hewlett-Packard Co (HPQ.N) on Tuesday issued a quarterly earnings report and forecast ahead of Wall Street targets as it cut costs and sold more PCs and server computers, sending its stock up 5 percent.

The report of a 38 percent profit rise showed HP was able to manage through a difficult economy due partly to strong sales in overseas markets, which account for more than two-thirds of total revenue.

"That's now 12 quarters of beats, basically since Mark Hurd came in" as chief executive, "so there's a lot of credibility to the company," said Richard Sichel, chief investment officer at Philadelphia Trust Co.

"The majority of revenues come from overseas, so this shows they can do well, and if things are slow in the U.S. for the next quarter or two, they are still growing overseas."

Notebook computers, server computers and software all showed revenue improvement. Analysts noted some weakness in the printer division, where consumer unit sales fell 2 percent, although overall revenue rose in the division.

Net income in HP's fiscal first quarter ended January 31 increased to $2.13 billion, or 80 cents per share, from $1.55 billion, or 55 cents per share, a year earlier. Revenue advanced 13 percent to $28.5 billion from $25.1 billion.

Excluding special items, profit was 86 cents a share, above an average analyst target of 81 cents. Analysts had expected revenue of $27.6 billion, according to Reuters Estimates.

"This positions the company well for 2008 and shows that they're able to execute even in a slowing economy." said analyst Shannon Cross of Cross Research.

HP "needed" to show strong earnings in a tough environment, Cross added. "They still had a slowdown from the printer side, but the other parts of the business made up for it."

HP was helped by cost cuts and strong sales abroad as U.S. technology spending slowed on recession concerns. But HP faces a tougher environment this year as consumers and companies reduce spending on technology hardware, the bulk of HP's business, and competition with a resurgent Dell Inc (DELL.O), the number-two PC maker, heats up.

"Our cost savings are significant and ongoing," Hurd told reporters on a conference call.

HP's overall operating margin, excluding special items, rose to 10 percent from 9 percent.

HP forecast second-quarter earnings per share before items of 83 to 84 cents, above the average Wall Street forecast of 82 cents. HP sees second-quarter revenue of $27.7 billion to $27.9 billion, above the average analyst forecast of $27.5 billion.

HP shares rose to $46.20 in extended trading after closing up 8 cents at $43.95 on the New York Stock Exchange.

U.S. CONSUMER WEAKER

"Consumer in the U.S. is not quite as robust as what we have seen in the past," although consumer-segment sales grew strongly abroad, Hurd said on the conference call.

The prices of some computer components, such as memory and monitors, will be "less favorable" in the current quarter than in the first period, Chief Financial Officer Cathie Lesjak told analysts.

Hurd has cut about 15,000 jobs since becoming CEO in 2005 and consolidated data centers and real estate to reduce costs. HP has spent some of the savings on software-company acquisitions to compete with IBM and other rivals.

HP has had fast growth in emerging markets such as India, Brazil and Russia, while expanding in software. It says the strategy will help it weather a tough economic climate this year.

"We've got a broad footprint," Hurd said. "There's some exciting growth in those emerging markets and we want to compete for it."

Revenue from Brazil, Russia, India and China jumped 35 percent in the first quarter, more than twice as fast as in the Americas.

First-quarter revenue in HP's personal systems group, which includes PCs for consumers and businesses, rose 24 percent to $10.8 billion and had an operating profit margin of 5.8 percent, up from 4.7 percent a year earlier. Notebook computer revenue jumped 37 percent, and desktops rose 15 percent.

Revenue in the enterprise storage and servers unit, which supplies servers and storage gear to businesses, rose 9 percent to $4.8 billion, helped by an 81 percent revenue surge from "blade" servers that use relatively less energy and space.

The imaging and printing group, which includes printers and printer supplies, had revenue growth of 4 percent, to $7.3 billion, and an operating margin of 15.7 percent, up from the year-earlier period's 15.3 percent.

Software posted revenue growth of 11 percent to $666 million after HP bought Mercury Interactive Corp in 2006 for $4.9 billion. It bought Opsware Inc for about $1.6 billion in September, bringing to about $7 billion the total for HP software-company acquisitions in recent years.

The company has said it is interested in buying companies that sell data management software and business intelligence programs for corporate customers.

HP shares, down 13 percent this year, trade at 13 times expected 2008 earnings per share, a discount to the average of companies on the Standard & Poor's 500 index and about the same as competitor International Business Machines Corp (IBM.N).

(Additional reporting by Scott Hillis and Duncan Martell; Editing by Braden Reddall)