By Trevor Shackelford December 6, 2006 -- Hewlett Packard (NYSE: HPQ) recently announced financial results for its fourth fiscal quarter of 2006. Net revenue for the quarter was $24.6 billion, up 7.4%, compared to $22.9 billion for the fourth quarter 2005. GAAP operating margin for the fourth quarter was 7.7%, up 670%, compared to 1.0% in the same quarter a year ago. Net income for the quarter was $1.7 billion, up 325%, compared to $0.4 billion in the year ago quarter. GAAP diluted earnings per share were $0.60, up 328%, compared to $0.14 in the same quarter of 2005. Contents of this Summary • Quarter Highlights • Segment Performance • Guidance • Raine Radar • Q & A Quarter Highlights • Net revenue for the fiscal year 2006 was $91.7 billion, representing growth of 6% over the prior year period, or 7% when adjusted for the effects of currency. • Operating profit for the year was $6.6 billion and GAAP diluted earnings per share was $2.18 per share, up from $0.82 in the prior year period. • Revenue in the Americas grew 8% to $10.8 billion, revenue in Europe, the Middle East and Africa grew 7% to $9.7 billion, and revenue in Asia Pacific grew 6% to $4.0 billion. When adjusted for the effects of currency, revenue in the Americas grew 7%, revenue in Europe, the Middle East and Africa grew 3%, and revenue in Asia Pacific grew 7%. • Cash flow from operations was $3.2 billion, up 77.7%, compared to $1.8 billion in the same quarter a year ago. • SG&A expense in the fourth quarter was $11.26 billion, relatively flat, compared to $11.18 billion in the same period a year ago. • The 2006 effective tax rate was 13.8%. Segment Performance Personal Systems Segment Revenues in this segment were $7.8 billion, up 2.8%, compared to $7.1 billion in the same quarter a year ago, with unit shipments up 16%. On a year-over-year basis, notebook revenue grew 24% while desktop revenue was flat. Commercial client revenue grew 4% year-over-year, while consumer client revenue increased 19%. Operating profit was $336 million, or 4.3% of revenue, up from a profit of $200 million, or 2.8% of revenue, in the prior year period. Imaging and Printing Segment Revenues in this segment were $7.2 billion, up 7.4%, compared to $6.7 billion in the same quarter a year ago. On a year-over-year basis, supplies revenue grew 9%, commercial hardware revenue grew 8% and consumer hardware revenue grew 2%. Printer unit shipments increased 17% year-over-year, with consumer printer hardware units up 16% and commercial printer hardware units up 20%. HP Indigo Press printed page volume grew 41% over the prior year period. Operating profit was $1.1 billion, or 14.8% of revenue, up from a profit of $896 million, or 13.2% of revenue, in the prior year period. Enterprise Storage and Servers Segment Revenues in this segment were $4.7 billion, up 4.5%, compared to $4.4 billion in the same quarter a year ago. On a year-over-year basis, industry-standard server revenue increased 9%, with blade revenue growth of 38%. Networked storage revenue grew 1%, with revenue growth of 11% in the midrange EVA line offset by declines in the high-end array and tape businesses. Operating profit was $502 million, or 10.7% of revenue, up from a profit of $404 million, or 9.0% of revenue, in the prior year period. HP Services Segment Revenues in this segment were $4.1 billion, up 2.5%, compared to $3.9 billion in the same quarter a year ago. Revenue in Technology Services was flat over the prior year period, with Consulting and Integration revenue up 7% and Managed Services revenue up 16%. Operating profit was $505 million, or 12.4% of revenue, up from a profit of $322 million, or 8.3% of revenue, in the prior year period. Software Segment Revenues in this segment were $349.0 million, up 14.4%, compared to $305.0 million in the same quarter a year ago. Revenue in HP OpenView was up 28% and revenue in HP OpenCall was down 11%. Operating profit was $60 million, or 17.2% of revenue, up from a profit of $28 million, or 9.2% of revenue, in the prior year period. Financial Services Revenues in this segment were $545.0 million, up 6.0%, compared to $514.0 million in the same quarter a year ago. Financing volume increased 1% over the prior year period, and net portfolio assets grew 4%. Operating profit was $35 million, or 6.4% of revenue, down from a profit of $52 million, or 10.1% of revenue, in the prior year period. Asset management Inventory ended the quarter at $7.8 billion, up $286 million sequentially and $873 million year-over-year. Accounts receivable grew $1.2 billion sequentially and increased $970 million over the prior year period to $10.9 billion. Guidance HP estimates first quarter 2007 revenue will be approximately $24.1 billion to $24.3 billion. First quarter 2007 diluted EPS is expected to be in the range of $0.55 to $0.57, and non-GAAP diluted EPS is expected to be in the range of $0.60 to $0.62. Raine Radar The recent flap about spying on directors seems not to have caused any problems with the company’s performance this quarter. Revenue and operating profit were up across virtually every line of HP’s business. Hurd has done a fantastic job of refocusing the company on excellence and profitability, with particular bright spots coming from notebooks and both commercial and consumer print devices and consumables. Q & A 1. Depreciation expense for the quarter was $215.0 million, which was up 24.2% compared to $173 million in Q4 2005. 2. HP offered full year 2007 guidance during the call. Revenues are expected to be $97.0 billion, GAAP EPS is expected to be between $2.28-$2.33, and non-GAAP EPS is expected to be between $2.48-$2.53. 3. “We closed a strong year with solid revenue growth, margin expansion across our key businesses and excellent cash flow from operations," said Mark Hurd, HP chairman and chief executive officer. "We are well on our way to building a more competitive HP that creates further value for our shareholders." 4. HP believes that within the different segments of the business there is much room for improvement with revenues and margins. HP believes that through smart acquisitions and improved efficiencies the company should be able to achieve further growth in the future. 5. HP stated that they are looking to improve inventories in fiscal year 2007. Inventory for the company has grown faster than revenues, but the “old” inventory should allow them to benefit from some cost savings. 6. The company believes they will see an incremental impact every quarter from the cost savings plan that allowed for business restructuring and a decrease in total employees.