Hawlett-Packard dazzled Wall Street on Tuesday by hopping over a low bar. The company said its core business was not declining as quickly as it was at other major technology companies, prompting investors to drive its shares up nearly 15 percent
In a preview of a full earnings report it plans to give Monday, the company also said that its fourth-quarter results had exceeded its earlier projections.
The relatively good news comes as the broader technology industry has started to report the effect of a worldwide economic retrenchment in recent weeks. Companies like Cisco Systems and Intel, reporting a rapid decline in consumer spending starting in October, have prepared investors to expect revenue declines of 10 percent or more.
More insight on how the tech sector is faring will come on Thursday when Dell is scheduled to release its third-quarter results.
For Hewlett-Packard’s investors, even flat financial results look like up.
“It was a relief rally,” said Brent Bracelin, a technology industry analyst with Pacific Crest Securities. “People were relieved that it wasn’t worse.”
The company did not provide details or reasons for its relative strength, saying it would not comment further until Monday. But industry analysts said that Hewlett-Packard, the world’s largest technology company, was benefiting from its geographic diversity, broad product portfolio, and, in particular, its recent $14 billion acquisition of Electronic Data Systems.
For its fiscal fourth quarter, which ended on Oct. 31, the company said net income was $1.03 a share. That figure, which excludes one-time charges, compares with analyst estimates of $1 a share. It said revenue was $33.6 billion, a 19 percent increase from the $28.3 billion of a year ago. A consensus of industry analysts had projected that its revenue would be $33 billion.
Like other technology companies, Hewlett-Packard is geographically diverse, with 70 percent of its revenue coming from overseas. But the company’s product portfolio is also unusually diversified in that it competes in computers, software and, increasingly, in services that provide recurring income. Up to 40 percent of Hewlett-Packard’s revenue and 65 percent of its profit come from long-term, steady deals, A. M. Sacconaghi, a securities analyst with Sanford C. Bernstein, said.
Mark Hurd, the chief executive, has also carried out cost-cutting.
“The strength in their results is really a testament to a highly defensive business model and a very strong focus on costs,” Mr. Sacconaghi said.
Yet the economy appears to be catching up to Hewlett-Packard, especially going toward the 2009 fiscal year.
Despite the worldwide economic uncertainty, the company forecast revenue for its 2009 fiscal year could be as much as $130 billion. On its face, that appears to be a sharp increase from the $118.4 billion in revenue for this fiscal year.
However, the company’s acquisition of E.D.S., a global computer services company, is expected to bring in $21 billion in revenue. Factoring that out, Hewlett-Packard’s year-over-year revenue from its existing core businesses will fall, or narrowly rise, depending on how currency exchange rates affect overseas revenue, industry analysts said.
In its 2008 fiscal year, Hewlett-Packard said that about $3.5 billion of its sales came from E.D.S.
Analysts said that the timing of the E.D.S. acquisition now appeared to be particularly lucky or a sign of great foresight by Mr. Hurd. The company provides not just additional revenue, but further diversification, analysts said.
“E.D.S. is so essential to H.P.’s guidance,” said Richard Kugele, an analyst with Needham & Company.
But analysts continue to cast a skeptical eye on Dell. A consensus of industry analysts projects Dell will report net income of 32 cents a share, in contrast to 34 cents last year. Mr. Kugele said the economy was eroding so quickly that Dell might well not meet those estimates.
Dell has taken steps to revive its slowing PC business. It has pushed into retail marketing, helping raise its market share in the United States; lowered costs through outsourced manufacturing; and paid closer attention to consumer tastes, Mr. Kugele said.
But Dell relies more heavily on the personal computer business than Hewlett-Packard. And that is a business under heavy pressure. Mr. Sacconaghi projects that unit shipments of PCs will grow 4.9 percent in 2009, but revenue will fall 2 percent during that period.
And Dell’s operating margins of about 5 percent are half of what they were in the late 1990s.
“Dell is doing the right things,” Mr. Kugele said. But given the economic environment, Dell’s results are not likely to offer the investor-pleasing surprise of Hewlett-Packard’s. “It’s going to be a very depressing, sloppy earnings call.”
