Hewlett-Packard
First off, here's a quick rundown on segment sales for the nine-month period ended July 31, to give you a feel for how well-diversified HP is in the technology markets it serves:
Segment |
Sales |
% of Total |
Overview |
---|---|---|---|
Storage & Servers |
$12,638 |
18.9% |
Entry-level, midrange servers |
Services |
$11,537 |
17.2% |
Tech servicing, consulting |
Software |
$952 |
1.4% |
IT-related |
Personal Systems |
$21,343 |
31.8% |
PCs, handheld devices |
Imaging & Printing |
$19,503 |
29.1% |
Printers and supplies |
Financial Services |
$1,533 |
2.3% |
Leasing, financing |
For the quarter, all major divisions posted a positive performance. The personal-computer division reported revenue growth of 8% and a jump in operating profit margin to 4% of sales, up from 2.6% in the prior-year period, while HP's most profitable division, imaging and printing, grew its top line 5%. The operating profit margin also expanded to 14.2% from 13%.
The storage and server business grew sales 3%, and the operating profit margin nearly doubled, to 7.2%. The services division reported a sales increase of 1%, while operating profit jumped about 3 percentage points to 9.4%. Software grew sales 30%, though it's still one of HP's smallest divisions. Finally, financial services grew its top line 6%, but its operating margin fell by almost half, to 6.7%.
That's a lot of divisions, which speaks to HP's size -- and makes the solid and improving numbers posted in nearly every division all the more impressive. Yesterday, fellow Fool Jack Uldrich detailed that HP may be looking to grow in the software realm, as witnessed by two recent acquisitions. Software is a very profitable and scalable business once the initial programs have been developed -- provided that those programs attain mass adoption, as offerings from behemoths Oracle
Jack also noted that HP's revitalized performance has been driven largely by cost-cutting initiatives. However, HP is also growing faster than other competitors, including technology giant IBM
HP also announced guidance for its fiscal 2006 that surpassed analysts' expectations. The company expects diluted GAAP earnings of $2.14-$2.16 per share, for a forward P/E of about 16. But earnings may understate HP's true cash-generating abilities, as operating cash flow has far exceed reported net income over the past three full years. Even free cash flow has met or exceeded net income over this time frame.
As I mentioned, it's so far, so good for Mr. Hurd; his ability to remake such a large firm is impressive. Perhaps only Motorola's
But there's no reason the company can't continue to lead the large-cap technology space for at least the next year or so, since it's further ahead in its own reformation and can easily expand its software market share. In the meantime, Oracle, Microsoft, IBM, and even Intel
For related Foolishness:
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Fool contributor Ryan Fuhrmann is long shares of Motorola but has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email Ryan with feedback or to discuss any companies mentioned further.