HP first quarter earnings: Expect strong PC, server gains

Hewlett Packard delivers its fiscal first quarter results Wednesday and analysts expect the company to benefit from an improving outlook for PC, server and printer sales.

Wall Street is expecting earnings of $1.06 a share on revenue of $30.01 billion, according to Thomson Reuters. Analysts across the board expect HP to beat those targets.

In contrast to recent quarters, HP's financial results will be more about the hardware and outlook for enterprise technology spending. Until recently, HP's quarters were carried by the services unit led by EDS.

Here's a look at the key items to watch: The PC upgrade cycle. Given Lenovo's strong quarterly results it stands to reason that HP, the market share leader, should garner strong growth for PC sales. Susquehanna Financial Group analyst Jeffrey Fidacaro expects HP's notebook revenue to jump 18 percent from a year ago. Desktop revenue will rise about 2 percent. Simply put, HP should benefit nicely from the Windows 7 pop that has fueled results at Intel and Microsoft. Server sales are bouncing back. Fidacaro expects HP to deliver industry standard server revenue growth of 12 percent from a year ago. If that works out, HP will break a five-quarter chain of negative server growth. Meanwhile, storage giant EMC said IT spending is bouncing back so HP's storage business is also likely to benefit. Look for talk about data center overhauls, server refresh cycles based on Intel's latest Nehalem architecture and converged data center infrastructure.

Stifel Nicolaus analyst Aaron Rakers wrote in a research report:

HP remains the leader in the x86 server market with a about 50% relative revenue share versus Dell and IBM, in which the company remains the dominant provider of growing blade servers, the fastest growing form factor in the x86 server market. Our checks remain positive on HP's position for an ongoing x86 server refresh/upgrade cycle.

Services/EDS. Analysts are beginning to focus on EDS' growth. HP has integrated EDS nicely and now Wall Street will be looking for comments about the EDS pipeline of deals and business in Europe, which has been rattled by economic worries stemming from Greece's debt problems. Overall, EDS is expected to begin driving a lot of hardware sales.

Printing. HP's printer unit is expected to be flattish yet remain a cash cow. Deutsche Bank analyst Chris Whitmore said:

We believe printer hardware and cartridge sales growth improved during the quarter due to easier compares, less channel inventory burn and related restocking. As a result, HP could post modest upside in (printing) results despite secular headwinds in printing, its highly discretionary nature and continued price competition.