Hewlett-Packard Co. (HPQ) said Thursday after the markets closed that its third quarter profit rose a modest 6% from last year, as an 11% revenue growth due to strength in its server, PC and printer businesses was dented by higher costs and expenses.
The Palo, Alto, California-based company reported GAAP net income for the third quarter of $1.8 billion or $0.75 per share, compared to $1.7 billion or $0.69 per share for the year-ago quarter.
Excluding amortization of purchased intangibles, restructuring charges and other items, non-GAAP net income for the third quarter was $2.6 billion or $1.08 per share, compared to $2.2 billion or $0.92 per share in the prior year quarter.
On average, 30 analysts polled by Thomson Reuters expected the company to earn $1.08 per share for the third quarter. Analysts' estimates typically exclude special items.
GAAP operating margin for the third quarter decreased to 7.6% from 8.0% a year ago, while non-GAAP operating margin improved to 11.2% from 10.9% last year.
HP, which is the world's largest technology company, said net revenue for the third quarter rose 11% to $30.73 billion from $27.59 billion in the same quarter last year. Twenty-seven analysts had a consensus revenue estimate of $30.43 billion for the third quarter.
HP's final third quarter results matched with its preliminary results revealed on August 6 while announcing the sudden and surprise resignation of Chairman, Chief Executive Officer and President Mark Hurd following an investigation of sexual harassment allegations against Hurd and the the company by a former HP contractor.
Hurd, who was at the helm of HP for 5 years, pushed the company beyond personal computers into more profitable areas such as outsourcing and computer networking. He directed more than $20 billion in acquisitions, and arranged severe cost cutting, including about 50,000 job cuts. Since Hurd's forced resignation, the company's market value has fallen by about $12 billion.
Third quarter revenue in the Americas rose 12% year-over-year to $14.2 billion, while revenue in Europe, the Middle East and Africa increased 9% to $10.9 billion and Asia Pacific revenue jumped 14% to $5.6 billion.
Third quarter revenue from the company's international business constituted 63% of the total revenue. Revenue from the so-called emerging markets of Brazil, Russia, India and China increased 21% over the prior year period and accounted for 11% of total revenue.
Third quarter revenue from HP's Personal Systems Group rose 17% year-over-year to $9.9 billion, with unit shipments up 12%. Notebook revenue for the quarter increased 10%, while Desktop revenue jumped 27%. HP continues to be the world's largest PC maker. It had taken the world PC lead from Dell in 2006.
The PC industry performed better than expected as worldwide PC shipments totaled 82.9 million units in the second quarter of 2010, a 20.7% increase from the second quarter of 2009, according to preliminary results published last month month by market research firm Gartner, Inc. (IT).
HP's Imaging and Printing Group posted revenue of $6.2 billion for the third quarter, up 9% from a year earlier.
The company's Enterprise Storage and Servers group generated third quarter revenue of $4.4 billion, an increase of 19% from the comparable year-ago quarter.
After Cisco Systems, Inc. (CSCO) announced its entry into the server market, HP is under added pressure as International Business Machines Corp. (IBM) and HP lead that market. Also, Round Rock, Texas-based Dell Inc. (DELL) has introduced a line of server models in a bid to lure businesses away from IBM and HP.
HP's services revenue for the third quarter grew 1% year over year to $8.6 billion. HP acquired Electronic Data Systems Corp. in 2008 to bolster this business.
The company's software revenue for the third quarter increased 2% from a year earlier to $863 million. In May, the company appointed Bill Veghte as executive vice president of its Software and Solutions business. Veghte joined HP from Microsoft Corp. (MSFT), where he most recently served as senior vice president for the $15 billion Windows business and where he was instrumental in the delivery and launch of Windows 7.
HP financial services revenue for the third quarter rose 14% year-over-year to $764 million.
During the third quarter, HP repurchased about 55 million shares of its common stock for $2.6 billion and ended the quarter with gross cash of $14.8 billion.
In order to enter the most vibrant and rapidly growing smart-phone market, HP bought Palm Inc. for about $1.2 billion in cash. In April, HP acquired net interface card maker 3Com Corp., which provided the company new capabilities in network security solutions, while expanding the company's presence deeper into China.
Looking forward to the fourth quarter, the company said it continues to expect revenue of $32.5 billion to $32.7 billion, GAAP earnings of $1.03 to $1.05 per share and non-GAAP earnings of $1.25 to $1.27 per share. Analysts currently expect the company to earn $1.26 per share on revenue of $32.65 billion for the fourth quarter.
For the fiscal year 2010, the company said it now expects revenue of $125.3 billion to $125.5 billion, GAAP earnings of $3.62 to $3.64 and non-GAAP earnings of $4.49 to $4.51 per share, which is consistent with its guidance provided on August 6. Analysts currently expect the company to earn $4.50 per share on revenue of $124.94 billion for the fiscal year 2010.
Also Thursday after the markets closed, rival Dell reported second quarter profit that increased 16% from last year, driven by strong demand from commercial customers across all products and services, and in all geographies. Second quarter revenue rose 22% from a year earlier. The company also reaffirmed its revenue growth outlook for fiscal 2010.
HP shares, which are trading in a range of $39.95 to $54.75 over the past year, closed Thursday's regular trading session at $40.76, down 60 cents or 1.45%. The stock is currently losing 29 cents in after hours trading.
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