By Ann Levine November 26, 2003 – Hewlett Packard (NYSE :HPQ) announced fourth quarter revenue of $19.9 billion, a 10% year over year increase over $18.0 billion for the same period last year. Non-GAAP diluted earnings per share were $0.36 as compared to $0.24 for the same period last year. Non-GAAP operating profits were $1.4 billion for the quarter. GAAP operating profits were $1.1 billion with GAAP earnings per share of $0.28 for the quarter. Topics of this summary : * Quarter Overview * Outlook * Q & A Quarter Overview HP reported profitability in all business segments for the quarter. By region, revenue in the Americas grew 6% to $9.2 billion. Europe grew 14% year over year to $7.6 billion. Asia-Pacific grew 16% with revenues of $2.2 billion. Japan showed a 5% year over year growth to $835 million. •  Enterprise systems showed a return to profitability with revenue of $4.1 billion; a 2% year over year increase. Operating profit for the quarter totaled $106 million. The improvement in operating profit is due to supply chain and manufacturing cost improvement, operating expense discipline, and head count reductions. •  HP Services realized revenues of $3.2 billion; a 5% increase. Managed services, and customer support showed increases in this segment, while consulting revenue declined10%. •  Personal Systems revenue grew 19% year over year totaling $6 billion for the quarter. This segment has been profitable in three out of the last four quarters. The consumer business was profitable, while the commercial business experienced challenges and eroding gross margins. •  Imaging and Printing posted revenues of $6.2 billion an 11% year over year increase. The operating profit surpassed $1 billion for the first time. The company said it set records for shipments of inkjet and laser printers, digital cameras and printing supplies. •  Financial Services showed encouraging results after three quarters of revenue decline. Revenue was $461 million and operating margins were 5.6%, the highest level since the merger. HP's investment in future operations include substantial investments in its enterprise strategy as evidenced by three recent acquisitions and a fourth just announced yesterday. In addition, HP plans $1 billion in software across the company, $600 million to build the HP brand, $275 million in workforce development training with $310 million projected in 2004. Outlook The first quarter outlook is for revenues in the $19 - $19.5 billion range. EPS is expected to be $0.35 on a non-GAAP basis. For the full fiscal year or 2004, EPS is estimated at $1.42. Lower seasonal volumes, PSG pressure and bonus payouts will all have an impact on earnings in 2004. Q & A 1. Although the company has experienced improvement in the Enterprise Systems Group, it has been slight at this point and improvement has been less than in other markets. The company is not counting on a substantial increase in demand. 2. During the call, additional headcount reductions were mentioned. A great deal of the reductions will be in the Enterprise area; however, there will also be reductions in Personal Systems and HP Services. The reductions will be distributed across domestic and international businesses. 3. HP typically has a normal seasonality adjustment from the fourth quarter to the first quarter of every year. This year HP is modeling an adjustment of a 2-4% decrease in revenues. 4. Implicit in the outlook for $1.42 full year earnings for 2004 is a decent economy and modest spending in the IT Enterprise space. Pricing will remain a challenge through 2004. 5. Consulting has seen an overall market decline due to too much capacity and too much high priced capacity. HP does not have an interest in purchasing a high-end consulting firm. The company in continuing to narrow its consulting portfolio. 6. The key drivers for operating expenses during the quarter were the reduction of headcount resulting in lower labor costs and lower consulting expenses. HP has had an on-going effort to reduce its use of consultants. The company has also put in place regular expense controls that will not change going forward. Operating expenses may change in the first quarter, as it is typically a heavy brand-spending month. In addition, the first quarter will show spending in employee training and development. Relieving some of the expenses is the heavy use of vacation in the first quarter. 7. HP still plans to take $75-100 million out of operating expenses in 2004 primarily from the Enterprise business. 8. Pricing, cost and availability are issues with component pricing trends. 9. For the medium to long-term, HP officials believe the Personal Systems business is a good one. The demand remains in the market and the company is positioned to win market share. The PC market is one where the leader wins and all other competitors lose. The PC business remains a strategic one for HP. 10. In the last few years, HP has taken steps to turn around its PC business through competitive pricing, gaining market share, outgrowing competitors and creating a lowered cost structure. The focus moving forward is to improve gross margins, up-selling the product and continuing to look at pricing. 11. HP will continue to invest in software in its Enterprise business to increase profitability.