HP Earnings Rise, Stock Falls

On August 16, HP reported better-than-expected adjusted earnings of 97 cents per share, about 12 cents higher than predicted. This good news was accompanied by good news for investors--a 2-for-1 stock split.

In a conference call, HP CEO Carly Fiorina called the results "superb" and pointed out solid growth in areas like imaging and printing, PCs, storage, software, and consulting.

Backing up Fiorina's words were the numbers posted by HP's imaging and printing systems—laser and inkjet printing, and imaging devices and associated supplies. This area boasted a 15 percent increase in revenue year over year. Much of the growth was attributable to HP PhotoSmart cameras and printers, which posted a phenomenal 329 percent revenue increase, and all-in-one products, which posted 77 percent growth in revenue.

Fiorina, claiming, "We're the fastest-growing PC vendor worldwide," pointed out that HP's home PC business grew 62 percent in revenue, despite a relatively flat U.S. retail market. Notebooks did exceptionally well, with a 93 percent revenue increase. Overall, the consumer business posted good results, growing 34 percent in revenue in the third fiscal quarter.

IT services also did well, growing 17 percent in revenue year over year. The consulting business, often criticized as one of HP's weak areas, turned in strong results, 46 percent revenue growth.

Computing systems were the fly in the ointment, as least as far as UNIX systems were concerned. UNIX server revenue growth was up 13 percent, far below the 20 percent plus targeted by Fiorina. While Fiorina presented an optimistic view, pointing out that HP posted higher UNIX growth than Sun, HP is still second in UNIX server sales, and Fiorina admitted that the competition in this area is "intense."

The day after HP reported earnings, August 17, the company's stock began to fall, mainly because of the disappointing revenue posted by the UNIX server business. Some analysts also pointed out that the results were skewed upward by interest earnings and lower tax rates.