By Trevor Shackelford February 21, 2005 -- Hewlett Packard (NYSE: HPQ) today announced record quarterly revenue of $21.5 billion, up 10% from $19.5 billion in the first quarter of 2004. This is also approximately a $100 million dollar increase over the previous quarter. Despite the positive revenue numbers, operating margin fell to 5.4% in this first quarter from 5.9% in the same period of the previous year. The company finishes the first quarter with an operating profit of $1.2 billion, or $0.32 per share up only $20 million from a year ago and down $124 million from the previous quarter. Topics of this Summary: Quarter Highlights Segment Performance Guidance Raine Radar Q & A Quarter Highlights Carly Fiorini has left HP and her roll of CEO and Chairman. CFO Robert Wayman will act as interim CEO. As the board looks to replace Carly, the focus will be on candidates with strong operational backgrounds who can improve on execution and profitability. Patent litigations between HP and Intergraph Corporations have been settled. The first quarter of 2005 saw an impact of approximately $0.03 per share. In mid-January, the Personal Systems Group and Imaging and Printing Group were unified into a single business under executive vice president Vyomesh Joshi. For purposes of this summary, these segments will still be broken down individually below. Year over year revenue growth in the first quarter from EMEA (Europe, Middle East, and Africa) and Asia Pacific/Japan outpaced growth in the Americas 2-1. Revenues from EMEA grew 12% to $9.3 billion, Asia Pacific/Japan grew 15% to $3.3 billion, and the Americas grew 6% to $8.9 billion. Segment Performance Imaging and Printing Group IPG reported Q1 revenues of $6.1 billion, up 3% from the previous year. Supply revenue grew 8%, fueled by strong color printing growth. Commercial hardware grew 4% driven by digital press (which grew 60%), color laser, and multi-function printers. Consumer hardware revenue fell 13%. IPG posted an operating profit of $932 million, or 15.4% of revenue, down $35 million from the same quarter last year. Personal System Group PSG reported Q1 revenues of $6.9 billion, up 11% from the previous year. Unit shipments increased 12% from Q1 2003 to Q1 2004, reflecting stable average selling prices. On a year over year basis, desktop revenue increased 8%, notebook revenue increased 9%, and handheld revenue increased 15%. Commercial client revenue increased 11%, and consumer client revenue increased 7%. The group reported an operating profit of $147 million, or 2.1% of revenue, up $86 million from the same period last year. Technology Solutions Group This group consists of Enterprise Storage and Servers, Software, and HP Services. The group reported revenue of $8.1 billion, up 14% from the same period last year. Operating profit for the quarter was $312 million, or 3.9% of revenue, down $53 million from the same period last year. The company blamed decreased margins on pricing and product mix pressure, as well as restructuring costs. Of this group, HP Services was most profitable with an operating profit of $281 million, or 7.4% of revenue, up 20 million from the same period last year. HP Services saw a 20% increase from Q1 2004 revenue to $3.8 billion in 2005. This growth is faster than the market and competitors. Enterprise Storage and Servers ranked second in this group with an operating profit of $71 million for the quarter, or 1.8% of their $4.0 billion in revenues. This revenue represents a 9% growth from the previous year for the ESS group. In order of profitability, Software ranks last in this group with a Q1 2005 operating loss of $40 million, compared with a loss of $49 million in the first quarter of 2004. Software revenues for the quarter were up 18% to $240 million. Financial Services HP Financial Services reported revenues of $555 million, up 26% from the same period last year. Operating profit was $45 million, or 8.1% of revenue, up from $29 million in the same period last year. Guidance HP estimates that second quarter 2005 revenues will be in the $21.2 billion to $21.6 billion range with non-GAAP earnings per share in the $0.35 to $0.37 per share range. Raine Radar During the flurry of rumors and speculation surrounding HP’s CEO (and strategy) search, one persistent rumor has been the potential spinning off of the personal systems group. Unifying the company’s oldest and most profitable Imaging and Printing Group with the struggling Personal Systems Group seems to reflect a desire in management to keep HP whole. The combining of these two groups could be an interesting move. Whereas some analysts maintain that HP is an $80 billion printer company that needs to be right-sized, until the CEO is firmly in place with reins in hand, it’s a tough call as to which way HP will go. Q & A The focus for the Imaging and Printing group in 2005 will be aggressive pricing and promotions aimed at capturing market share globally, primarily in home photo and all-in-one printers. HP will be examining the Imaging and Personal Systems Group’s cost structure and supply chain management as its first initiatives in generating a return on the unification of these two business units. Despite weakness in consumer hardware, HP believes that 7%-9% revenue growth year-over-year and operating profit margins in the 13%-15% range are still realistic due to very high growth in the color laser and digital print realms. Home photo printing grew 160% in the first quarter. HP is expecting a gross margin improvement overall in 2005.