Computing and services giant Hewlett-Packard has surprised some financial analysts by reporting a strong set of first-quarter results for fiscal 2008, and raising its outlook for Q2.
Net income was $2.1 billion on first-quarter revenues of $28.5 billion, with revenues up 13% year on year. Looking at revenue by region, Asia-Pacific grew 22%, EMEA grew 15% and the Americas increased by a much smaller margin of eight percent.
HP generated $3.2 billion of cash from operations, which includes the payment of an annual employee bonus, and returned $3.3 billion to shareholders through share repurchases.
HP's chief finance officer Cathie Lesjak explained the strong quarter by pointing to the company's manifold revenue sources: “We generated 69% of total revenue outside of the US, with emerging markets driving significant growth. First-quarter gross margins were 24.5% compared to a year ago. Gross margin was up 80 basis points, driven by a generally favourable commodity environment, disciplined pricing and improvements in warranty and attach [sic].”
But thereby hangs a tale, to misquote the Bard. US revenues have not been separately itemised, which means that the Americas figures may be pumped up by business from outside the US. However, we can infer from Lesjak's percentages that US-specific revenues were in the region of $8 billion.
There was good news for the outsourcing sector, which has seen promising figures by other leading players this month. Services were a strong performer for HP – a company that is widely seen as a bellwether stock for the health of both the enterprise hardware and services markets. Revenue was up $4.4 billion, or 11% year on year.
Outsourcing and integration revenues led from the front, increasing 15% and 13% respectively, while technology services revenue was up nine percent. Operating profit for the quarter was $489 million, or 11.2% of revenue.
Said Lesjak: “We remained focused on balancing margin expansion with revenue growth. Our services results reflect improved focus on services attach [sic], combined with operational improvements from our ongoing efficiency initiative. We've made progress reducing our cost to service delivery, but we still have considerable work to do.”
CEO Mark Hurd was equally forward-looking: “HP delivered a strong first quarter. We had balanced growth and profitability across all regions and gained share in key market segments.”
Hurd claimed that the company's performance was driven by three key factors: “[First] Significant cost savings to both fund our growth and expand our earnings; two, our deployment of additional sales resources to capture incremental opportunities in the enterprise and mid-markets; and three, diverse global customer base and a broad portfolio that's aligned with the growth areas of the market.
“Let me be clear, our cost savings are significant and ongoing,” he concluded. HP has projected second quarter revenues of $27.7 billion to $27.9 billion, compared to estimates calling for $27.4 billion.
HP has recently inked a seven-year outsourcing deal with Unilever to manage parts of its IT infrastructure outside the US. The deal is valued at $675 million, and suggests that technology companies with a huge international footprint can weather the storm, but the immediate future for smaller US technology companies may be less easy to divine from major-league players' results.
