The Day Ahead: HP delivers revenue growth to back up its revival talk

Business is looking good for Hewlett-Packard

The new Hewlett-Packard (HP) had its millennium coming out party with better than expected first quarter earnings and strong revenue growth of 14 percent. A few more strong revenue quarters and HP will convert the remaining six analysts that rate the stock a "hold". When you can put revenue growth and HP in the same sentence, you know times are changing. The company reported operating earnings on Wednesday of 80 cents (49p) a share on sales of $11.7bn (£7.2bn). In the fourth quarter, it saw its sales grow by 10 percent.

Chief executive Carly Fiorina was convincing when she spoke on a conference call last. She talked about customer wins at the expense of Sun Microsystems, high-profile partnerships with Internet stars such as Amazon.com, and strong PC unit growth as the company fills the consumer void left by IBM and Packard Bell NEC's exit from the market. "We are decidedly upbeat," said Fiorina. "We're winning more deals and the revival is underway."

She highlighted HP's recent innovations: insurance to protect companies from e-commerce hackers, a big deal with Ford Motor and partnerships with business-to-business players, such as Ariba and i2. She also said HP was partnering with wireless leaders such as Nokia.

It's safe to say Fiorina was engaging in a classic case of high-tech name-dropping. She hit every hot buzzword out there these days. But that's OK, considering HP has looked like one of the most unhip tech companies for years. Its advertising pushes the message "invent", and Fiorina is busy inventing a new image for the company, which also announced that PC unit sales were surging and notebook sales were strong. Good printer demand was boosting sales of high-margin supplies. Geographically, HP reported strong sales with the Asian Pacific leading the sales growth.

Chief finance officer, Robert Wayman, also spoke. He revealed a few numbers that indicate the old HP isn't totally dead, despite the fact that the surge in revenue growth profits were down substantially from a year ago. Why? Because operating expenses were above HP's projections. Wayman said there's "still a lot of work to do" on the company's cost structure. There were a few issues in the quarter. For starters, HP had higher costs due to the Agilent spin-off and stock appreciation rights. It also took a margin hit because of higher memory costs and sales of lower margin products, such as PCs and low-end printers. Wayman said Agilent expenses cut about a penny a share from the bottom line, with increased memory costs trimming two pennies. Increased advertising and an unfavorable Yen conversion didn't help matters either.

Wayman said the worst is over in terms of memory prices and reiterated previous guidance of earnings, and revenue growth of 12 percent to 15 percent for 2000. "Since we're ahead of plan, we're hoping to come in at the high-end of that range," he said. Earnings growth will remain in the same range as revenue growth, he said.

Some analysts sounded concerned about the expenses and earnings in the first quarter, but HP was navigating year 2000 spending slowdowns and other potential landmines. The jury may still be out on HP, but it's swinging toward the company's favour.

What do you think? Tell the Mailroom and read what others have to say.

See techTrader for more technology investment news, plus quotes and research.

See Inter@ctive Investor for US tech investor news.

Newsletters

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
See All
See All