HP Earnings Up 14% In 4QHP Earnings Up 14% In 4Q

Hewlett-Packard Co.'s purchase of EDS began paying off just in time to help HP report a fourth quarter earnings jump of 14% to $2.4 billion. HP's services story helped mask revenue declines in PCs, servers, software, and printers.

More important, though, the company is detecting an uptick in the economy, even as sales declined 8% to $30.8 billion compared with the previous year's fourth quarter. Chief executive Mark Hurd said in an analysts call that HP sees "encouraging signs of recovery. We worked hard on our cost structure to emerge from this economic downturn more competitively positioned." HP raised its outlook for the first fiscal quarter of 2010, boosting both its sales and earnings projections.

The EDS acquisition and, to a lesser extent HP's pending acquisition of 3Com, signal a fundamental sea change for the company as its traditional bread and butter products -- PCs and printers -- are beginning to be overshadowed by services and networking products.

Hurd pointed to HP's $13.9 billion August 2008 acquisition of EDS as a major talking point in HP's fourth quarter report. "HP's solid performance in services drove record profit, and the accelerated pace in signings creates strong momentum going into 2010," he said in a statement. Later in the analysts meeting he said EDS is "an enormous asset we are just beginning to leverage to sell not only services, but also to pull through hardware and software."

Already commodities, PCs and printers are increasingly under growing competitive pressure as prices fall and profit margins drop. HP said its Personal Systems Group revenue declined 12% to $9.9 billion with desktop revenue plunging 16%. The PSG operation posted an operating profit of $460 million, which was down from $616 million. However, units shipped were up and HP continued its lead over arch-rival Dell. It held onto a lead in the enterprise PC market where it claimed double digit year-over-year gains.

HP's Imaging and Printing Group reported a 15% decline in revenue to $6.5 billion on a printer unit shipments decline of 20%. The group, however, retained its status as a golden cash cow with $1.2 billion in profits.

Enterprise Storage and Servers reported a 17% drop in revenue to $4.2 billion and a drop in operating profit to $481 million from $705 in the previous year. Revenue in the HP Software operation declined 16% to $967 million.

Josh Farina, an analyst at high tech market research firm TRB, said HP had a "relatively good year." He added that "the company remains focused on where it is going, not where it has been. HP is laying the groundwork to take advantage of pent up demand once the economic recovery goes into full swing."