HP’s turnaround takes another step forward

Hewlett-Packard’s turnaround moved another step forward on Wednesday as the US technology conglomerate reported an unexpected jump in profitability in its long-troubled PC business and continued improvement in its storage and server division.

By mid-morning on Thursday, HP shares were up 7.8 per cent to $35.15.

“This was an important quarter for HP,” said Mark Hurd, chief executive officer. “To be sure, there are more hard efforts ahead of us, but our efforts are starting to show results.” HP beat both its own and Wall Street forecasts for revenue and earnings growth in its most recent quarter.

The rebound in the company’s PC division came on the back of a 26 per cent bounce in unit sales of notebook computers. Operating profit margins in the business, long HP’s most troubled unit, rose to 3.9 per cent, “their highest level in many years,” said Mr Hurd.

Carly Fiorina, who was removed as HP’s CEO a year ago, attracted considerable controversy on Wall Street over her decision to expand the company’s then-unprofitable PC business with the acquisition of Compaq Computer. Despite her insistence that the business could return to decent profitability, however, she was unable to raise its profit margins to a level that satisfied investors.

With average selling prices for PCs largely unchanged in the latest quarter, the 8 per cent growth in PC revenues was the result of “raw growth” in the business, said Mr Hurd. The recovery of HP’s PC business in recent quarters had already put pressure on rival Dell, which is due to report quarterly earnings on Thursday.

Mr Hurd refused to comment on whether HP’s turnaround reflected better execution by its management team since he took over from Ms Fiorina. “I don’t know about better because I have only been here for a year,” he said, but added: “When we’ve set objectives to accomplish we’ve been generally speaking good at what we say.”

Overall, HP said that its revenues had risen by 6 per cent to $22.7bn, ahead of its own guidance of $22.3-22.6bn, and would have grown 8 per cent had it now been for foreign currency movements. Net income rose 30 per cent to $1.227bn, or 42 cents per share. On a pro-forma basis, earnings reached 48 cents a share, ahead of the 44 cents a share that Wall Street had expected.