updated 2/20/2008 7:47:18 AM ET 2008-02-20T12:47:18

With a stellar start to its new fiscal year, Hewlett-Packard Co. has given technology investors something else to get excited about besides Microsoft Corp.’s audacious bid to buy Yahoo Inc.

Now Wall Street will try to figure out whether the success of the world’s largest technology company bodes well for the rest of the industry as the U.S. economy sputters toward a possible recession.

Boosted by rising computer sales, HP demonstrated its strength amid the economic weakness with a 38 percent increase in its fiscal first-quarter profit and a pledge to deliver even better results during the rest of the year.

The news late Tuesday drove HP shares up $2.17, or nearly 5 percent, in extended trading after the stock finished the regular session up 8 cents at $43.95.

“This is good news for tech,” said Gartner Inc. analyst Martin Reynolds. “If we can just get through another quarter, maybe the (technology) industry will skate through all of this nastiness without suffering too much damage.”

But American Technology Research analyst Shaw Wu cautioned against using HP to gauge the financial temperature of the entire tech industry. He said he thinks HP’s performance is being driven largely by its extensive reach beyond the troubled United States market and a no-nonsense approach that has permeated the company since Mark Hurd became chief executive nearly three years ago.

“I think this (quarter) is more indicative of what Mark Hurd has done to instill a culture of success and execution at HP,” Wu said.

The Palo Alto-based maker of computers and printers said it earned $2.13 billion, or 80 cents per share, for the three months ended in January. That compared with net income of $1.55 billion, or 55 cents per share, in the same period a year earlier.

If not for expenses stemming from past acquisitions, HP said it would have earned 86 cents per share. That figure exceeded the average estimate of 81 cents per share among analysts surveyed by Thomson Financial.

Revenue for the period totaled $28.5 billion, a 13 percent increase from the previous year. Analysts, on average, had forecast revenue of $27.6 billion.

And HP’s management predicted the company will fare better than analysts had been anticipating for the remainder of its fiscal year. Excluding certain one-time expenses, HP expects to earn from $3.50 to $3.54 per share for the year ending in October, outstripping the previous analyst estimate of $3.36 per share, according to Thomson Financial.

Escalating worries about the weakening U.S. economy have been punishing high-tech stocks in recent weeks as industry bellwethers like Google Inc., Apple Inc., Intel Corp. and Cisco Systems Inc. either released disappointing quarterly profits or tepid forecasts.

HP joined fellow high-tech heavyweights Microsoft and IBM Corp. in producing quarterly earnings and forecasts that painted a somewhat rosier picture. Those three stalwarts share a common denominator: most of their sales occur outside the United States, enabling them to milk the stronger economies in Europe and Asia.

The United States accounted for just 31 percent of HP’s first-quarter revenue. If not for favorable currency fluctuations stemming from the weak dollar, HP said its revenue during the period would have been up by a more modest 8 percent.

HP has been consistently delivering pleasant surprises since Hurd’s arrival. This marks the 10th consecutive quarter in which Hurd has raised the bar for the company’s future performance.

Since Hurd’s arrival, HP’s market value has doubled, creating more than $50 billion in shareholder wealth, while the company surpassed rival Dell Inc. to become the world’s top seller of personal computers.

Shipments in HP’s computer division climbed 27 percent in the first quarter.

But HP’s printer sales are weakening, with shipments aimed at the consumer market slipping 2 percent in the first quarter. Selling printers is important to HP because sales of the ink used in them generate a recurring stream of hefty profits.

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