Shares of Hewlett-Packard Co. jumped Wednesday, as investors signaled their approval of chief executive Mark Hurd’s moves to cut costs and boost revenue in divisions where sales had stagnated for years.
Hewlett-Packard, one of the nation’s largest printer and computer companies, said Wednesday it will consolidate its 85 data centers worldwide into six larger centers in three U.S. cities, in a move that will help it reduce information technology spending by about $1 billion.
The announcement comes the morning after Hewlett-Packard reported fiscal second-quarter profit that jumped 51 percent, largely on sales of more profitable types of PCs and printers and from stealing market share from its biggest rival in PCs. The results contrasted with a gloomy forecast last week from Dell Inc., the world’s biggest PC maker.
For the three months ended April 30, HP earned $1.46 billion, or 51 cents a share, compared with $966 million, or 33 cents per share, in the same quarter last year. Sales rose 5 percent to $22.6 billion from $21.6 billion last year. Revenue would have risen by 8 percent if it weren’t for the effects of foreign exchange rates, HP said.
Excluding one-time expenses, the company earned $1.6 billion, or 54 cents per share, compared with a profit of $1.1 billion, or 37 cents per share, in the same period last year.
On that basis, which does not comply with generally accepted accounting principles, HP beat Wall Street expectations. Analysts were expecting the company to earn 49 cents a share on sales of $22.6 billion, according to a Thomson Financial survey.
“We believe the upside is driven not by cost cutting but by better execution,” said Cindy Shaw, an analyst with Moors & Cabot. “We think this company is going to continue to positively surprise investors.”
The Palo Alto-based company forecast profit in the current quarter of 45 cents and 48 cents, higher than the 43 cents analysts had expected. HP predicted revenue would be $21.8 billion, which is in line with Wall Street expectations.
Sales in HP’s PC division grew 10 percent to $7 billion as it shipped 16 percent more machines than last year. Hurd said HP’s share of shipments in the quarter gained 1.4 percentage points worldwide and 2 percentage points in the United States. He did not provide more specific market-share numbers.
Last month, the research firm Gartner Inc. said HP’s share of PC worldwide shipments grew to 14.9 percent in the first calendar quarter of this year, compared with 13.8 percent in the same period of 2005. Dell saw its share decline to 16.5 percent, from 16.9 percent, Gartner said.
HP’s profit from PCs was boosted by a 27 percent increase in revenue for mobile machines, which tend to be more lucrative than desktop models.
The strong performance in HP’s PC division comes eight days after Dell said its fiscal first-quarter profit and sales will be lower than previously forecast due to “pricing decisions.” Dell reports its quarterly results on Thursday.
Hurd said prices in the PC market were “aggressive” during the past quarter and he saw no indication they would change in the current period.
But he appeared to temper speculation voiced by some analysts in recent days that profit margins in HP’s PC group might deteriorate as Dell and HP engaged in a protracted price war.
“Share ... is not the primary driver for how we think about the business,” Hurd said. HP’s forecast for the current quarter has already factored in the lower PC prices, he added.
In an interview, he said HP had to balance its desire to build market share with other objectives, such as the maintaining quality through investments in research and penetrating more profitable market segments.
“It’s really the kind of share you have in the areas you’re in,” he said.
Sales in HP’s printer group, the company’s most profitable division, grew 5 percent to $6.7 billion, adding $1 billion to HP’s profit. The group increased sales of printing supplies, including its highly profitable ink and toner cartridges, by 10 percent. Printer sales grew 4 percent for commercial customers and declined by 8 percent for consumers.
Hurd said HP over the next year planned to hire more people to increase its sales force for its largest corporate customers. The goal, he said, was for HP’s sales force to have more contact with customers who buy computer servers and printing gear. He declined to specify the number he planned to hire, but said the increase would be “significant.”
The hiring plans came as HP’s work force declined by 1,600 in the quarter, bringing the total number of jobs reduced to 8,100 since HP announced a restructuring in July.
On Wednesday, H-P said the global consolidation of data centers will result in the deployment of HP’s IT infrastructure in two facilities each in Atlanta as well as Houston and Austin, Texas.