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HP Reports Preliminary Third Quarter 2004 Results, Sales up 9%

Press release from the issuing company

PALO ALTO, Calif.--Aug. 12, 2004-- HP today reported preliminary financial results for its third fiscal quarter ended July 31, 2004, including third quarter revenue of $18.9 billion, an increase of 9% year-over-year. Non-GAAP(1) operating profit was $846 million for the quarter. Non-GAAP diluted earnings per share (EPS) was $0.24 for the quarter, as compared to $0.23 in the prior year period. Non-GAAP diluted EPS and non-GAAP net earnings include a $142 million adjustment on an after-tax basis, or $0.05 per diluted share. GAAP operating profit for the quarter was $657 million. GAAP diluted EPS was $0.19 per share, up 90% from $0.10 in the prior year period. During the quarter, and on a year-over-year basis, revenue in the Americas grew 4% to $8.4 billion, Europe grew 14% to $7.5 billion, and Asia Pacific grew 11% to $3.0 billion. On a total company basis, and when adjusted for the effects of currency, third quarter revenue grew 5% year-over-year. "Although we are satisfied with our performance in Personal Systems, Imaging and Printing, Software and Services, these solid results were overshadowed by unacceptable execution in Enterprise Servers and Storage. We therefore are making immediate management changes. We are also accelerating our margin improvement plans in this business. With these changes, we expect our server and storage business to return to profitability in the fourth quarter," said Carly Fiorina, HP chairman and chief executive officer. Technology Solutions Group The Technology Solutions Group consists of Enterprise Servers and Storage, Software and Services. The Group reported revenue of $7.0 billion, up 4% from the prior year period. Operating profit for the quarter totaled $56 million, down $209 million year-over-year. Enterprise Servers and Storage Enterprise Servers and Storage reported revenue of $3.4 billion, down 5% year-over-year. Industry Standard Server revenue grew 2% year-over-year. Business Critical Server revenue declined 8% year-over-year to $828 million with UNIX® revenue up 8%, Alpha down 32%, and NonStop down 25%. Total storage revenue totaled $709 million for the quarter, down 15% year-over-year. Online storage, including EVA and XP enterprise storage, declined 23% year-over-year. Nearline storage, which includes the tape library business, declined 16% year-over-year. Enterprise Servers and Storage reported a quarterly operating loss of $208 million, down from a loss of $20 million in the prior year period. Several factors impacted performance this quarter. First, in the United States, a migration to a new order processing and supply chain system was more disruptive than planned. Second, in Europe, results were impacted by channel management issues including channel compensation, overly aggressive discounting and the transition to a centralized claims process. Third, HP's storage business was significantly below plan. Taken together, these issues accounted for this quarter's shortfall against consensus estimates. In addition, normal business acceleration toward quarter end was muted. Software Software reported record quarterly revenue of $223 million, an increase of 17% year-over-year. HP OpenCall revenue increased 8% over the prior year period. HP OpenView revenue increased 26% year-over-year. Software reported an operating loss of $45 million, as the company continues to make strategic investments that support the HP Adaptive Enterprise strategy. HP Services HP Services revenue grew 12% year-over-year to $3.5 billion reflecting continued strength in Managed Services, which grew 42% year-over-year. Customer Support grew 7% year-over-year and revenue in Consulting and Integration increased 6%. Operating profit was $309 million, a decrease of $26 million over the prior year and represented 8.9% of revenue. Personal Systems Personal Systems revenue totaled $5.9 billion, an increase of 19% year-over-year. Desktop revenue increased 26% year-over-year, while notebook revenue grew 12%. Commercial revenue grew 20% and Consumer revenue grew 19%. Personal Systems reported an operating profit of $25 million, up from a loss of $56 million in the prior year period. Imaging and Printing Imaging and Printing posted record third quarter revenue of $5.6 billion, up 8% year-over-year. During the quarter HP shipped almost 10 million printers, bringing total shipments to approximately 320 million units worldwide. Business hardware grew 8% year-over-year driven by strong unit shipments in color and mono lasers, business inkjets and MFPs. Home hardware decreased 5% with all-in-one unit sales growth offset by declining single-function printers and normal seasonality. Supplies grew 9% fueled by strong growth in color and monochrome laser supplies. Digital Imaging grew 11% as strong digital camera unit shipments helped offset an expected decline in scanner market. Operating profit of $837 million was also a third quarter record and represented 14.8% of revenue. Financial Services HP Financial Services reported revenues of $488 million, up 10% year-over-year, reflecting its highest quarterly revenue in five quarters. Operating profit was $42 million, an increase of $23 million from the prior year period, and represented 8.6% of revenue, the highest level in several years. Asset Management Inventory ended the quarter at $6.7 billion, up $472 million from the prior quarter and up $603 million year-over-year. Trade receivables declined $65 million from the prior quarter to $8.5 billion. HP's dividend payment of $0.08 per share in the third quarter resulted in a cash use of $244 million. In addition, HP repurchased $500 million of stock during the third quarter. HP exited the quarter with $14.4 billion in gross cash, which includes cash and cash equivalents of $14.0 billion and short- and certain long-term investments of $400 million. Outlook HP estimates fourth quarter revenue will be in the range of $21.0 billion to $21.5 billion, and fourth quarter non-GAAP earnings per share will be in the range of $0.35 to $0.39. The non-GAAP EPS expectations assume after-tax exclusion for fourth quarter charges of approximately $0.05 per share from amortization of purchased intangible assets and acquisition-related charges. More information on this quarter's earnings is available on HP's Investor Relations site at www.hp.com/hpinfo/investor/quarters/quarters.html.