November 28, 2005 -- Hewlett-Packard Co., (NYSE: HPQ) announced their fourth quarter results today. Total revenue for HP's fourth quarter was $22.9 billion, 7% higher than the $21.4 billion reported for the fourth quarter of 2004. Non-GAAP operating profit was $1.7 billion, with non-GAAP diluted earnings per share of $0.51, up 24% from $0.41 in the prior-year period. Non-GAAP financial information for the fourth quarter excludes $1.1 billion of adjustments on an after tax basis, or $0.37 per diluted share, related primarily to restructuring-related costs and amortization of purchased intangibles, offset by a pension curtailment credit. GAAP operating profit was $232 million and GAAP diluted EPS was $0.14 per share, down from $0.37 in the prior-year period. Contents of this Summary Quarter Highlights Segment Performance Guidance Raine Radar Q & A Quarter Highlights Gross profit was $5.4 billion for the quarter, or 23.5% of revenue, up from 23.4% a year ago and 23.2% sequentially. Non-GAAP operating margin was 7.6% compared to 7% reported in the prior-year period. GAAP operating margin was 1% compared to 6% reported in the prior-year period. Adjusted for the effects of currency, fourth quarter revenue grew 6% year-over-year. Pre-tax restructuring charges were $1.6 billion, which is more than the estimated restructuring charge of $1.1 billion. Non-GAAP tax rate was 20%, which is in line with the company’s guidance. Dividend payment of $0.08 per share in the fourth quarter resulted in cash usage of $229 million. Cash flow from operations of $1.9 billion, bringing the year-to-date total to $8 billion Share purchases of $1.4 billion, bringing the year-to-date total to $3.5 billion. Cash and cash equivalents at the end of the quarter was $13.9 billion. Gross cap-ex was $522 million, down 29% year-over-year and up 57% sequentially Approximately 4700 workers left the company in the fourth quarter as part of the restructuring. Segment Performance During the quarter, on a year-over-year basis, revenue in the Americas grew 5% to $10 billion, Europe, the Middle East and Africa grew 8% to $9.1 billion, and Asia Pacific grew 12% to $3.8 billion. Adjusted for the effects of currency, revenue was up 4% in the Americas, 8% in EMEA and 9% in Asia Pacific. Imaging and Printing Group Imaging and Printing Group (IPG) posted quarterly revenue of $6.8 billion, up 4% year-over-year. On a year-over-year basis, consumer hardware revenue decreased 4%, with printer unit shipments up 6%. Commercial hardware revenue grew 4% over the prior-year period, with printer unit shipments up 16%. Color laser unit shipments increased 41% year-over-year, and enterprise multifunction printer shipments increased 83%, with all-in-one unit shipments up 25% year-over-year. Overall printer hardware unit growth was 8%. Supplies revenue grew 7%. Operating profit for the segment was $896 million, or 13.2% of revenue, down from a profit of $1.1 billion, or 16.6% of revenue, in the prior-year period. The company is also trying to expand its leadership in large-format printing with the acquisition of Scitex, which completed on November 1, 2005. Personal Systems Group Company continued to show a balanced approach to revenue growth and operating margin improvements. Personal Systems Group (PSG) revenue grew 9% year-over-year to $7.1 billion, with particular strength in notebooks, where revenue increased 23%. The consumer business saw revenue growth of 14% year-over-year and strong operating margins. Consumer notebook shipments increased 48% over the prior-year period. Revenue in commercial clients increased 8% year-over-year, with notebooks posting strong growth and profitability improvements. The segment operating profit was $200 million, or 2.8% of revenue, representing the fifth consecutive quarter of operating margin improvement in PSG. Enterprise Storage and Servers Enterprise Storage and Servers (ESS) reported revenue of $4.5 billion, up 10% over the prior year period. On a year-over-year basis, industry-standard server revenue increased 12%, networked storage revenue grew 17%, reflecting improved execution and solid growth in every product category and every region. The company continued to see solid momentum in integrity servers, with revenue up 70% year-over-year. This was offset by weakness in PA-RISC and Alpha. ESS reported operating profit of $405 million, or 9.1% of revenue, up from a profit of $100 million, or 2.5% of revenue, in the prior-year period. HP Services HP Services (HPS) revenue grew 6% year-over-year to $3.9 billion. On a year-over-year basis, managed services revenue grew 9%, technology services grew 4% and consulting and integration grew 11%. Segment operating profit was $322 million, or 8.3% of revenue. As in the third quarter, HP Services margins were pressured by the company bonus accrual given the headcount heavy business. Excluding the fourth quarter bonus accrual, operating margins in managed services and consulting and integration were at their best levels in two and three years, respectively, and operating margins in technology services were at their highest levels in FY05. Software Software reported quarterly revenue of $311 million, an increase of 11% year-over-year, with revenue in HP Open View and HP Open Call increasing 16% and 3%, respectively. Software reported an operating profit of $27 million, or 8.7% of revenue compared with a loss of $7 million in the prior-year period. During the quarter, the company continued to strengthen its software offerings with the pending acquisition of Peregrine. The acquisition will add key asset and service management components to the HP Open View portfolio, a distributed management software suite for business operations and IT. Financial Services HP Financial Services (HPFS) reported revenue of $514 million, an increase of 3% year-over-year. Finance volume decreased 1% year-over-year and was up 21% sequentially. Operating profit was $52 million, or 10.1% of revenue, up from a profit of $19 million, or 3.8% of revenue, in the prior-year period and down from 11.9% in Q3. The improvement in margin is largely due to the fact the Q4 2004 results were adversely impacted by the recording of reserves for certain receivables. During the course of fiscal year 2005, the risk profile of the portfolio has steadily improved and the reserve levels have been adjusted accordingly. Guidance The company provided the guidance for full year of 2006. Company expectations are as follows; Revenue typically declines by approximately 2 to 3% from the Q4 to the Q1, in line with normal business seasonality and thus the company expects revenue of $22.3 billion to $22.6 billion during the first quarter of 2006 Company expects an adverse full-year currency impact of approximately 2% to 3% for 2006 Company expects revenue growth of roughly 3% to 5% for FY 06, suggesting approximately $89.5 billion to $91 billion First quarter 2006 non-GAAP earnings per share is expected to be in the range of $0.46 to $0.48, excluding $0.03 to $0.04 stock based compensation expense, or $0.42 to $0.44 including stock based compensation expense. Full year 2006 non-GAAP earnings per share is expected to be in the range of $1.88 to $1.95, excluding approximately $0.13 of stock based compensation expense, or $1.75 to $1.82 including stock based compensation expense. Non-GAAP earnings per share estimates for Q1 2006 and full year 2006 exclude after tax costs of approximately $0.04 per share and $0.14 per share respectively, primarily related to the amortization of purchased intangible assets. Raine Radar HP beat profit expectations this quarter, even after the company recorded a 1.1 billion expense to cut as many as 15,000 jobs, with almost 1/3 leaving during the fourth quarter. The changes have been tough for the company, but shares are up almost 70% from when Hurd took over. The company should start to see EPS grow from the cost savings, so HP looks like it is in good shape for the near term. Taking the longer view, it’s unclear whether the company can achieve any major organic revenue growth. To combat this problem, the company will likely look to continue its strategy of acquisitions, especially in areas likes software and services. Q & A Company expects that printer margins, going forward should be in the range of 13% to 15%. Q4 is seasonally a very strong quarter for the company. HP believes that storage and other businesses software can have a positive effect on the gross margin over time. The company has no specific response to the lower printer prices announced by its competitor, Lexmark. HP saw a steady improvement year-over-year in the PSG segment, and believes its lineup is strong in US retail as well as various global and international markets. The company said that the software business grew, and was a major driver of profitability. Most of the analog printing base has moved to digital and as that base finishes its shift, HP believes that they are well positioned with their indigo platform. According to the company, consulting and integration and managing services performed in better manner over the past several periods. HP also sees more opportunities for improvement in the service business. Company didn’t quantify the impact of its bonus program for the quarter in terms of margin. Bonus amount will depend upon company performance and results. HP is expecting slow and steady revenue growth. The company believes that there is room for further improvement in inventories as the company’s inventory management is still not “world class.”