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HP: Bearer of good enterprise spending news?

When Hewlett-Packard reports its fiscal fourth quarter results Monday it'll be expected to deliver a dose of optimism about enterprise technology spending.After all, we know the bad news.

When Hewlett-Packard reports its fiscal fourth quarter results Monday it'll be expected to deliver a dose of optimism about enterprise technology spending.

After all, we know the bad news. Financial services companies are pulling back on spending with giants like IBM and Cisco. And if those two bellwethers are seeing weakness others are too. But what about HP?

HP (all resources) is expected to navigate the macroeconomic concerns and deliver some good news to the technology industry. The company is expected to report fourth quarter earnings of 82 cents a share on revenue of $27.4 billion, according to Thomson Financial. HP's outlook will be critical. For HP's fiscal first quarter it is expected to report earnings of 77 cents a share on sales of $27 billion. For fiscal 2008, HP is expected to report earnings of $3.27 a share on sales of $109.5 billion.

Most analysts expect HP to hurdle expectations and ride to the rescue of the tech sector. HP's PC business will have tough comparisons with a year ago, but strength in consumer sales yield gains. J.P. Morgan projects PC sales of $9.54 billion for the quarter.

J.P. Morgan analyst Bill Shope reckons that printing will carry the day for HP (as usual). HP should benefit from market share gains in inkjet printing as rival Lexmark struggles.

Where things could get dicey is on the enterprise front, but analysts dismiss concerns. Shope writes in a research note:

Enterprise business remains solid despite macro volatility. Partly due to share gains in x86 and blades in particular, we believe HP's enterprise momentum remains solid. If macro trends deteriorate, we believe continued cost cutting and market share momentum make HP relatively more insulated than its peers. We expect revenues of $5.67 billion and margins of 13.2%.

Shope's general theory is that HP can weather whatever the economy throws at it. Meanwhile, HP's growing software business can cushion profit margins. He isn't alone. "We expect HP to raise fiscal 2008 estimates on its November earnings call," said Goldman Sachs analyst Laura Conigliaro.

UBS analyst Ben Reitzes calls HP the "safest" bet in hardware. He said in a note he expects HP will show market share gains in blade servers, mid-range storage, services and software.

"We expect HP’s performance to be the best of the large cap enterprise hardware companies this reporting season. After IBM’s weakness in hardware and software and Cisco’s commentary about the US Enterprise market, the group can obviously use some help."

Reitzes, like other analysts, expect HP to deliver strong enterprise gains.

The consensus view: If HP sales come in light it can still cut costs in areas like procurement, information technology and real estate to exceed earnings targets. Credit Suisse analyst Robert Semple had some interesting comments regarding potential cost savings:

We estimate HP can deliver $1.35 billion in savings in FY08 consisting of $650 million in procurement, $400 million in IT data center consolidation and $300 million in real estate consolidation. We expect HP to reinvest 50% of the savings back into the business or on to customers, with the remaining $675 million falling to the bottom-line.

On procurement, HP should continue to use reverse auctions and more subcontractors to cut costs out of its $65 billion supply chain, said Semple.

Bottom line: Everyone expects HP to be the savior of the tech sector. If HP delivers all will be well. If it doesn't there are a lot of folks leaning the wrong way.