HP reports third quarter 2010 results

In the third quarter, GAAP diluted earnings per share (EPS) was $0.75, up from $0.69 in the prior-year period. Non-GAAP diluted EPS was $1.08, up from $0.92 in the prior-year period, including a one-time negative impact of approximately $0.02 per share related to a legal settlement. Non-GAAP financial information excludes after-tax costs of approximately $0.33 per share and $0.23 per share in the third quarter of fiscal 2010 and 2009, respectively, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.

Third quarter revenue was up 12% in the Americas to $14.2 billion. Revenue was up 9% in Europe, the Middle East and Africa and up 14% in Asia Pacific to $10.9 billion and $5.6 billion, respectively. When adjusted for the effects of currency, revenue was up 11% in the Americas, up 12% in Europe, the Middle East and Africa and up 8% in Asia Pacific. Revenue from outside of the United States in the third quarter accounted for 63% of total HP revenue, with revenue in the BRIC countries (Brazil, Russia, India and China) increasing 21% while accounting for 11% of total HP revenue.

Services

Services revenue increased 1% to $8.6 billion. Infrastructure Technology Outsourcing revenue and Business Process Outsourcing each increased 1%, while revenue in Technology Services declined roughly 1%. Application Services revenue was up 4% versus the prior-year period. Operating profit was $1.4 billion, or 15.9% of revenue, up from $1.3 billion, or 15.3% of revenue, in the prior-year period.

Enterprise Storage and Servers

Enterprise Storage and Servers (ESS) reported total revenue of $4.4 billion, up 19%. Industry Standard Server revenue increased 31%, while Storage revenue increased 10% and Business Critical Systems revenue declined 15%. ESS blade revenue was up 29%. Operating profit was $549 million, or 12.3% of revenue, up from $381 million, or 10.2% of revenue, in the prior-year period.

HP Software

HP Software revenue increased 2% to $863 million. Business Technology Optimization revenue increased 3%, and Other Software revenue decreased 1%. Operating profit was $183 million, or 21.2% of revenue, up from $153 million, or 18.1% of revenue, in the prior-year period.

Personal Systems Group

Personal Systems Group (PSG) posted a 12% increase in unit shipments and maintained the leading market share position in PCs worldwide. PSG revenue increased 17% to $9.9 billion. Notebook revenue for the quarter was up 10%, while Desktop revenue increased 27%. Commercial client revenue was up 25%, while Consumer client revenue increased 12%. Operating profit was $469 million, or 4.7% of revenue, up from $387 million, or 4.6% of revenue, in the prior-year period.

Imaging and Printing Group

Imaging and Printing Group (IPG) revenue increased 9% to $6.2 billion. Supplies revenue was up 5%, while Commercial hardware revenue and Consumer hardware revenue increased 28% and 4%, respectively. Printer unit shipments increased 16%, with Commercial printer hardware units up 44% and Consumer printer hardware units up 9%. Operating profit was $1.0 billion, or 16.9% of revenue, versus $960 million, or 17.0% of revenue, in the prior-year period.

Corporate Investments

ProCurve revenue increased 42%, and HP Networking overall increased 198% year over year including the impact of the 3Com acquisition.

HP Financial Services

HP Financial Services (HPFS) revenue increased 14% to $764 million. Financing volume increased 3%, and net portfolio assets increased 13%. Operating margin was 9.4%, up from 7.9% in the prior-year period.

Asset management

HP generated $3.3 billion in cash flow from operations for the third quarter. Inventory ended the quarter at $7.2 billion, with days of inventory up to 28 from 25 in the prior-year period. Accounts receivable of $15.6 billion was down 2 days year over year. Accounts payable ended the quarter at $14.9 billion, up 2 days over the prior-year period. HP’s dividend payment of $0.08 per share in the third quarter resulted in cash usage of $205 million. HP also utilized $2.6 billion of cash during the quarter to repurchase approximately 55 million shares of common stock in the open market. HP exited the quarter with $14.8 billion in gross cash.

Outlook

For the fourth quarter of fiscal 2010, HP estimates revenue of approximately $32.5 billion to $32.7 billion, GAAP diluted EPS in the range of $1.03 to $1.05, and non-GAAP diluted EPS in the range of $1.25 to $1.27. Fourth quarter fiscal 2010 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.22 per share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.

For the full year, HP expects revenue in the range of $125.3 billion to $125.5 billion. HP expects FY10 GAAP diluted EPS to be in the range of $3.62 to $3.64 and non-GAAP diluted EPS in the range of $4.49 to $4.51. FY10 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.87 per share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.