HP Revs Up the Horsepower

Bad news for the likes of Lexmark (NYSE: LXK  ) and Dell (Nasdaq: DELL  ) -- one of their chief problem-causers, Hewlett-Packard (NYSE: HPQ  ) , seems to be profiting at least in part from their misery. The management change HP made about a year and a half ago has something to do with it as well.

Second-quarter earnings released after the bell on Tuesday showed revenue up 5% year over year but down slightly on a sequential basis. Margins improved nicely on both a GAAP and adjusted basis, and net income growth was likewise solid by either metric. Relative to the growth in the business, inventory seems to be in good shape, too.

Working in HP's favor was what I see as widespread strength in its operating units. Margins improved in all of the units, and that fueled strong operating income growth. And looking at the PC and print businesses, where rivals Dell and Lexmark have been having their troubles lately, we see that HP delivered 10% and 5% revenue growth, respectively. Specifically in the case of printing, the company's strategy of price-based competition on hardware seems to be working -- supply revenue rose 10%, and the company posted margins that were both better than last year's and better than Lexmark's.

To be fair, I don't think HP is succeeding merely because of price. In fact, I think it might actually be winning some battles on the higher-tech front. Take the case of the PC and server business -- is it coincidence that HP is doing well with its AMD (NYSE: AMD  ) products while many Intel (Nasdaq: INTC  ) customers are having troubles? I may have been slow in giving AMD its due, but it definitely seems as though something is going on here.

HP seems like a decent enough hideout for nervous tech investors. I have other, cheaper, tech stocks higher up on my list of favorites, but I think there could still be good returns here in the future as the company moves its focus from cost-cutting and efficiency to better total growth.

For more Foolish thoughts with a tech twist:

Intel and Dell are recommendations of Motley Fool Inside Value, the newsletter that digs through the market's cache for quality stocks trading at bargain prices.Try it free for 30 days.

Dell is also a Motley Fool Stock Advisor pick.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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