In the second quarter, GAAP operating profit was $2.3 billion and GAAP diluted earnings per share (EPS) was $0.70, down from $0.80 in the prior-year period. Non-GAAP operating profit was $2.8 billion, with non-GAAP diluted EPS of $0.86, down from $0.87 in the prior-year period. Non-GAAP financial information excludes $382 million of adjustments on an after-tax basis, or $0.16 per diluted share, related primarily to amortization of purchased intangible assets, restructuring charges and acquisition-related charges.
“Disciplined focus on operational efficiencies and execution drove record cash flow,” said Mark Hurd, HP chairman and chief executive officer. “Our services business continued to deliver strong profitability with an increased deal pipeline and the EDS integration tracking ahead of schedule.”
Revenue grew 9 percent in the Americas to $12.1 billion. Revenue declined 11 percent in Europe, the Middle East and Africa and 10 percent in Asia Pacific to $10.6 billion and $4.7 billion, respectively. When adjusted for the effects of currency, revenue grew 12 percent in the Americas while declining 2 percent in Europe, the Middle East and Africa and 5 percent in Asia Pacific. Revenue from outside of the United States in the second quarter accounted for 64% of total revenue, with revenue in the BRIC countries (Brazil, Russia, India and China) declining 12 percent over the prior-year period while accounting for 9 percent of total HP revenue.
Services revenue increased 99 percent to $8.5 billion due primarily to the EDS acquisition. Infrastructure Technology Outsourcing posted revenue of $3.8 billion while Technology Services, Application Services and Business Process Outsourcing posted revenue of $2.4 billion, $1.5 billion and $709 million, respectively. Operating profit was $1.2 billion, or 13.8% of revenue, up from $507 million, or 11.9 percent of revenue, in the prior-year period. The EDS integration is tracking ahead of plan.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported total revenue of $3.5 billion, down 28 percent. Storage revenue declined 22 percent with the midrange EVA product line down 21 percent. Industry Standard Server revenue and Business Critical Systems revenue declined 29 percent each, while ESS blade revenue was down 12 percent. Operating profit was $250 million, or 7.2 percent of revenue, down from $655 million, or 13.7 percent of revenue, in the prior-year period.
HP Software revenue declined 15 percent to $880 million. Business Technology Optimization and Other Software revenue declined 15 percent each. Operating profit was $157 million, or 17.8 percent of revenue, up from $104 million, or 10.0% of revenue, in the prior-year period.
Personal Systems Group
Personal Systems Group (PSG) posted flat unit shipments in a challenging environment and attained the leading market position in PCs in every region. PSG revenue declined 19 percent to $8.2 billion. Notebook revenue for the quarter was down 13 percent, while Desktop revenue declined 24 percent. Commercial client revenue was down 22 percent, while Consumer client revenue decreased 16 percent. Operating profit was $374 million, or 4.6 percent of revenue, down from $544 million, or 5.4 percent of revenue, in the prior-year period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue declined 23 percent to $5.9 billion. Supplies revenue was down 14% due in part to channel inventory realignment, while Commercial hardware revenue and Consumer hardware revenue declined 40 percent and 31 percent, respectively. Printer unit shipments decreased 27 percent with Commercial printer hardware units down 36 percent and Consumer printer hardware units down 23 percent. Operating profit was $1.1 billion, or 18.2 percent of revenue, versus $1.2 billion, or 16.0 percent of revenue, in the prior-year period.
HP Financial Services
HP Financial Services (HPFS) reported revenue of $641 million, down 6 percent from the prior-year period. Financing volume increased 7 percent, and net portfolio assets declined 1 percent. Operating margin was 7.2 percent of revenue, up from 6.9 percent in the prior-year period.
HP generated $5.0 billion in cash flow from operations for the second quarter. Inventory ended the quarter at $5.7 billion, down 7 days. Accounts receivable of $14.7 billion was up 5 days. Accounts payable ended the quarter at $11.4 billion, down 6 days. HP’s dividend payment of $0.08 per share in the second quarter resulted in cash usage of $192 million. HP utilized $801 million of cash during the second quarter to repurchase approximately 24 million shares of common stock in the open market. HP exited the quarter with $13.0 billion in gross cash.
HP expects third quarter FY09 revenue to be approximately flat to down 2 percent sequentially.
Third quarter FY09 non-GAAP diluted EPS is expected to be approximately $0.88 to $0.90. Third quarter FY09 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.22 to $0.24 per share, related primarily to the amortization of purchased intangibles and restructuring charges. On a GAAP basis, third quarter FY09 diluted EPS is expected to be approximately $0.64 to $0.68.
HP estimates full-year FY09 revenue will decline approximately 4 to 5 percent from the prior-year period.
Full year FY09 non-GAAP diluted EPS is expected to be approximately $3.76 to $3.88. FY09 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.72 to $0.74 per share, related primarily to the amortization of purchased intangibles and restructuring charges. On a GAAP basis, full year FY09 diluted EPS is expected to be approximately $3.02 to $3.16.