HP Reports Second Quarter 2009 Results

Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below. Unless otherwise noted, all growth rates included in the narrative below reflect year-over-year comparisons.

Revenue grew 9% in the Americas to $12.1 billion. Revenue declined 11% in Europe, the Middle East and Africa and 10% in Asia Pacific to $10.6 billion and $4.7 billion, respectively. When adjusted for the effects of currency, revenue grew 12% in the Americas while declining 2% in Europe, the Middle East and Africa and 5% 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% over the prior-year period while accounting for 9% of total HP revenue.

Services

Services revenue increased 99% 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% 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%. Storage revenue declined 22% with the midrange EVA product line down 21%. Industry Standard Server revenue and Business Critical Systems revenue declined 29% each, while ESS blade revenue was down 12%. Operating profit was $250 million, or 7.2% of revenue, down from $655 million, or 13.7% of revenue, in the prior-year period.

HP Software

HP Software revenue declined 15% to $880 million. Business Technology Optimization and Other Software revenue declined 15% each. Operating profit was $157 million, or 17.8% 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% to $8.2 billion. Notebook revenue for the quarter was down 13%, while Desktop revenue declined 24%. Commercial client revenue was down 22%, while Consumer client revenue decreased 16%. Operating profit was $374 million, or 4.6% of revenue, down from $544 million, or 5.4% of revenue, in the prior-year period.

Imaging and Printing Group

Imaging and Printing Group (IPG) revenue declined 23% 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% and 31%, respectively. Printer unit shipments decreased 27%, with Commercial printer hardware units down 36% and Consumer printer hardware units down 23%. Operating profit was $1.1 billion, or 18.2% of revenue, versus $1.2 billion, or 16.0% of revenue, in the prior-year period.

HP Financial Services

HP Financial Services (HPFS) reported revenue of $641 million, down 6% from the prior-year period. Financing volume increased 7%, and net portfolio assets declined 1%. Operating margin was 7.2% of revenue, up from 6.9% in the prior-year period.

Asset management

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.

Outlook

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.

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