HP posts better than expected Q1 revenue, helped by enterprise PC upgrades

Hewlett Packard Co's revenue fell less than Wall Street expected in the first quarter and it raised its outlook for fiscal 2014 earnings as the computing giant grew sales at its two largest businesses and again signaled a better year ahead.

In the midst of a multi-year turnaround effort intended to revive growth, the Silicon Valley company is trying to reduce its reliance on personal computers and move toward computing equipment and networking gear for enterprises.

On Thursday, the company broke its losing streak in its PC-focused personal system group with a 4 percent gain in revenue. Chief Executive Office Meg Whitman told analysts that the company saw corporations and agencies beginning to replace ageing computers in the quarter, while Microsoft's decision to soon end support for its Windows XP operating system also prompted PC upgrades.

Business at its enterprise group, the lynchpin of HP's strategy to transform itself into an IBM-like provider of enterprise computing services, edged 1 percent higher as server sales fared better than analysts had expected. Chief Executive Officer Meg Whitman said growth in revenue and operating margins in that crucial division was "possible," provided demand from enterprises holds up.

Whitman, who took the helm of the HP more than a year ago, has said she expects revenue to stabilize in 2014, with some areas of growth for the company.

On Thursday, Whitman stuck to that outlook and told Reuters she was upbeat on HP's European business as the developed part of that region stabilized, and she said she saw strength in emerging markets like India and Mexico. She added that HP's business in China stayed largely flat, better than competitors had fared.

"Pleased with the progress, more work to be done," Whitman summarized for Reuters in an interview.

"It's a battle. It's a knife fight every single day out there, but we feel we've got the right ammunition," she told analysts later.

On Thursday, HP raised the lower end of its full-year earnings outlook slightly, to $3.60 to $3.75 versus a previous forecast for $3.55 to $3.75.

For the first quarter, HP posted revenue of $28.2 billion, down slightly from $28.4 billion a year earlier and beating expectations for about $27.2 billion.

"They're in a strong position to do well this year, but it also shows the continued challenges in their enterprise business, their software business," said Shannon Cross of Cross Research. "They're clearly not done in terms of improving."

Caution abounds
Investors have been cautious on the outlook for computing companies after IBM posted disappointing results, in part because of slowing corporate and emerging markets demand, and a backlash against U.S. corporations in China over revelations of U.S. spying activity abroad.

Cisco Systems Inc, a rival in networking equipment, forecast a 6 percent to 8 percent decline in revenue this quarter.

HP has battled IBM as well as now-private Dell and China's Lenovo in trying to win business from enterprises migrating to the cloud, or remote computing services. Whitman said Lenovo's imminent purchase of IBM's low-end server division presented an opportunity for HP to try and win market share, especially in the near term, given that customers tended to avoid uncertainty about a supplier's product roadmap.

(Also see: Lenovo to buy IBM's low-end server business for $2.3 billion)

"We have a near-term opportunity to gain share in our server business. We're all over it with our channel partners," she said. But "in the long term, Lenovo is going to be a powerful competitor."

The company posted a 16 percent rise net earnings of $1.4 billion in the first quarter, compared to $1.2 billion a year ago. Excluding items, it earned 90 cents a share, better than the 84 cents analysts had expected, according to Thomson Reuters

I/B/E/S
Shares of HP gained a penny to $30.20 after hours, from a close of $30.19 on the New York Stock Exchange.

"HP is in a stronger position today than we've been in quite some time, Whitman said in a statement.

"Rest assured, we're not taking our foot off the pedal," she told analysts later on a conference call. "We have a lot of work ahead of us."

© Thomson Reuters 2014