Hewlett-Packard reported third-quarter profits of $2.03 billion, or $0.80 per share, as compared with $1.78 billion, or $0.66, for the same period last year. Excluding one-time charges, the company earned $0.86 per share, $0.03 above analysts’ estimates. Sales rose 10%, to $28 billion.
Typically, Hewlett-Packard offers conservative guidance and then tops its forecast by a few pennies per share. The company says it expects to earn $1.01 to $1.03 in the fourth quarter.
Hewlett-Packard grabbed the lead in the personal computer market from Dell (DELL) in 2006 by cutting prices and selling sleekly designed notebook computers through about 80,000 US retailers.
Dell is counterpunching by adopting HP’s strategy and now sells its computers through about 13,000 retail outlets in addition to its traditional online sales.
Computer sales represent about one third of HP's total sales; overall, the sector has posted double-digit growth in the last 2 years. Third-quarter PC sales rose 20% from the same period a year ago; notebook revenue climbed 26% and desktop sales rose 6%
Hewlett-Packard had 19% of worldwide computer sales in the second quarter compared with Dell’s 16%, but Dell’s sales outpaced Hewlett-Packard’s.
Future growth looks tougher because Hewlett-Packard also faces increased competition from Apple (AAPL) in the computer market. Apple has expanded beyond PCs to offer the iPhone and iPod, and enjoys a cult-like following among some consumers.
HP said printer shipments declined 2% from the third quarter a year ago, as the company focused on more profitable printers. Revenue from supplies such as ink rose 11%.
Hurd continues to expand Hewlett-Packard’s other businesses to diversify revenue. The company has spent about $6 billion in the last 3 years to expand its software unit, and third-quarter software sales rose 29% to $781 million.
Hewlett-Packard’s service revenue, including consulting and outsourcing, rose 14% to $4.75 billion. The company’s $13.2 billion purchase of Electronic Data Systems (EDS) will close this month. The acquisition is intended to help Hewlett-Packard compete with IBM (IBM) in computer services. The deal is HP’s largest acquisition since it purchased Compaq for $18.9 billion in 2002.
Software and computer services will help Hewlett-Packard offset higher prices for PC parts and a consumer shift to cheaper machines.
Hewlett-Packard benefited from the weak US dollar because sales in some foreign currencies translate into more dollars. However, the dollar has been rising against the pound, euro and yen, and the importance of exchange rates may diminish in the future. The company reported strong sales in Brazil, China, India and Russia.
“Our global position, broad product and services offerings and incremental cost saving opportunities make us confident that we’ll continue to meaningfully expand earnings,” Hurd said in a prepared statement.
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