HP profit jumps 14 percent on cost-cutting and services strength;

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HP profit jumps on cost-cutting, services strength

SAN FRANCISCO — Hewlett-Packard Co.’s profit jumped 14 percent in the latest quarter, proof that cost-cutting and a push into rival IBM Corp.’s stronghold of technology services is helping the company absorb a falloff in sales in most of its major divisions.

As a yardstick for the health of overall technology spending, HP’s latest numbers reinforce trends other companies have reported: Consumers and China are showing stronger demand, while businesses remain hesitant. Other tech heavyweights such as Google Inc., IBM, Intel Corp. and Microsoft Corp. have reported better conditions in some of their businesses.

HP also added $8 billion to its stock buyback program, boosting the total amount available to $12 billion.

HP reported Monday after the market closed that it earned $2.4 billion, or 99 cents per share, in the three months ended Oct. 31. That compares with $2.1 billion, or 84 cents per share, in the year-ago period.

Excluding one-time items, net income was $1.14 per share. Sales fell 8 percent to $30.8 billion, or dropped 5 percent if currency fluctuations are stripped out. By both metrics, the results exceeded the expectations of analysts polled by Thomson Reuters.

Investors had a good idea what was coming, since HP announced its better-than-expected preliminary results on Nov. 11. Still, some apparently expected even better.

HP shares dipped 20 cents, less than 0.4 percent, to $50.82 in extended trading. Before the earnings report they closed at $51.02, up 2 percent.

HP’s results show how important the expansion beyond personal computers has been for the world’s No. 1 PC maker.

Four of HP’s major divisions — PCs, servers, software and printers — each reported big revenue declines from last year, a trend HP has responded to buy buying its way into other, more profitable markets.

HP’s services division, which it beefed up last year with the $13.9 billion acquisition of IBM rival Electronic Data Systems, posted better profits. Unlike IBM, however, HP didn’t release the dollar value of its new-contract signings or the value of its services backlog, key indicators of how much business is in the pipeline.

HP, which is based in Palo Alto, is also muscling into Cisco Systems Inc.’s turf of computer networking with the $2.7 billion takeover of 3Com Corp. announced last month.

The moves represent a shift away from HP’s dependence on the PC market, which is vulnerable to swings in consumer and corporate spending, as well as to fluctuations in prices for components like memory chips and LCD screens.

The PC division supplies a third of HP’s revenue but just 15 percent of the company’s operating profit, numbers that are getting slimmer as PC makers aggressively cut prices to court cash-strapped consumers and people snap up little laptops called “netbooks” that sell for just a few hundred dollars.

In the latest period, HP’s PC shipments rose 8 percent, while revenue in the PC division fell 12 percent. The trend has hurt other PC makers as well. Last week, Dell Inc., the No. 3 PC maker, disappointed investors by reporting a 54 percent drop in net income in its latest quarter.

Still, HP’s results support Gartner Inc.’s report Monday that the third quarter was “much stronger” than expected for PC sales. Gartner is now predicting that PC shipments will rise 2.8 percent this year. The firm was predicting a 2 percent decline before.

Deep cost cuts have accompanied HP’s shift in strategy. HP is eliminating 24,600 jobs as part of the EDS acquisition, and hasn’t addressed whether there will be layoffs at 3Com, which has 5,800 employees worldwide. In May the company announced a separate round of 6,400 cuts involving workers from the product divisions.