PALO ALTO, Calif.--Feb. 19, 2004-- HP today reported financial results for its first fiscal quarter ended Jan. 31, 2004. First quarter revenue was $19.5 billion, an increase of 9% year-over-year.
Non-GAAP(1) operating profit was $1.4 billion for the quarter, or 6.9% of revenue, an increase of 23% year-over-year. Non-GAAP diluted earnings per share (EPS) was $0.35 for the quarter, up 21% from $0.29 last year. Non-GAAP diluted EPS and non-GAAP net earnings include a $144 million adjustment on an after-tax basis, or $0.05 per diluted share. The pre-tax adjustment includes a $54 million true-up to previously taken restructuring charges, $144 million in amortization of purchased intangible assets, and $15 million for various acquisition-related items. All non-GAAP financial information in this release is reconciled in the table below titled, "Non-GAAP Consolidated Condensed Statement of Earnings."
GAAP operating profit for the quarter was $1.1 billion or 5.9% of revenue, an improvement of $264 million or 30% year-over-year and $70 million or 7% sequentially. GAAP diluted EPS was $0.30 per share, up 25% from $0.24 year-over-year and 7% from $0.28 in the fourth quarter.
"HP delivered a solid quarter," said Carly Fiorina, HP chairman and chief executive officer. "In a seasonally weak period we demonstrated HP's earnings potential with our most balanced profit performance since the merger.
"In Personal Systems we grew revenue in both desktops and notebooks almost twice as fast as our nearest competitor for the second quarter in a row, achieved the No. 1 market share position worldwide and generated record profits.
"Our Enterprise Systems performance was fueled by strong revenue growth in our key hardware businesses. We also improved profitability by $190 million from last year while continuing to strengthen our software portfolio with strategic investments and acquisitions.
"Imaging and Printing reported record first quarter revenue and operating profit, reflecting steady growth in our supplies business and good holiday sales in the consumer market. We shipped over 14 million hardware units in the quarter, an increase of 12% over the prior year, and we continued to outpace the market and gain share in key categories, with particular strength in higher value categories.
"HP Services grew 6% year-over-year despite intensifying pricing pressure in customer support and weakness in the consulting and integration industry. Meanwhile, momentum in managed services continued, with year-over-year growth of 27%. We expect our operating margin performance to improve throughout the year as we continue to reduce our cost structure.
"HP Financial Services posted its fifth consecutive quarter of profitability and we are pleased with the health of our portfolio.
"Our competitive position is strong in each of our core markets: consumer, small and medium business and enterprise. We have good momentum across our businesses, a compelling portfolio and confidence in our ability to increase growth, profitability and shareowner value," said Fiorina.
During the quarter, revenue in the Americas grew 3% year-over-year to $8.4 billion, and represented 43% of total revenue. Europe grew 17% year-over-year to $8.3 billion, and represented 42% of total revenue. Asia Pacific grew 9% to $2.1 billion, and represented 11% of total revenue. Japan grew 4% year-over-year to $777 million, and represented 4% of total revenue. On a total company basis, and when adjusted for the effects of currency, first quarter revenues grew 1% year-over-year.
Revenue in Enterprise Systems, which includes the hardware division (enterprise storage and servers) and the software division, grew 5% year-over-year to $3.9 billion. Operating profit for the quarter totaled $108 million, or 2.8% of revenue, a $190 million profit improvement over the year ago quarter. Enterprise storage and servers reported an operating profit of $154 million, or 4.1% of revenue. HP continued to strategically invest and acquire capability in software, which reported an operating loss of $46 million.
Industry-standard server revenue increased 15% year-over-year to record quarterly revenues, driven by unit growth of 23%. During the most recent calendar quarter, HP extended its share in the x86 server market to almost 33%, the company's highest level in four quarters, fueled by sequential share gains of 3 percentage points in EMEA. HP has 43% market share in Europe and exceeds 50% share in 12 European countries, including the UK, where HP achieved its highest market share since the merger.
UNIX revenues declined 13% year-over-year, reflecting intense pricing pressure, particularly in the high-end and low-end. Alpha revenue declined 32% year-over-year, and HP 9000 revenue was essentially flat over the prior year period. Momentum in Superdome continued, with unit orders up 52% year-over-year. Revenues from Itanium-based Integrity shipments continued to ramp, with a sequential increase of 60%.
Storage growth in high-end and midrange arrays was 14% year-over-year, led by strong customer acceptance of the midrange HP StorageWorks Enterprise Virtual Array, which grew 112%. This was offset by weakness in the high-end and a 5% decline in the tape business, reflecting HP's decision to exit the OEM library business. Total storage revenue declined 2% year-over-year.
Software revenue grew 9% year-over-year to a new first quarter record, with HP OpenView up 9% and HP OpenCall up 11%.
HP Services revenue was $3.2 billion, up 6% year-over-year. Operating profit was $258 million, or 8.2% of revenue, down from 11.4% in the prior year period. This reflects the lengthening of customer procurement cycles, intensified pricing pressures, continued weakness in consulting and integration revenues and utilization rates and the initial investments associated with some of the large managed services deals won in the past 12 months.
HP's managed services momentum continued with year-over-year growth of 27% or four times market growth rates. Customer support revenue increased 7% year-over-year. Revenue in consulting and integration declined 10% year-over-year, reflecting continued industry weakness.
Personal Systems revenue totaled $6.2 billion in the quarter, up 20% year-over-year and 3% sequentially. Units increased 23% year-over-year, fueled by notebook growth of 52%. On a year-over-year basis, notebook revenue increased 42%, desktop revenue increased 11% with improving average selling prices, and handheld revenue grew 25%.
In the fourth calendar quarter, HP achieved worldwide share leadership in PCs. HP retained its leadership position in notebooks and extended its lead to over 2 points of share. In Europe, HP extended its lead in PCs by gaining almost one point of share year-over-year.
Personal Systems reported an operating profit of $62 million in the quarter, compared to $33 million in the prior year period and $22 million in the fourth quarter. This represents the highest quarterly profit in the Personal Systems business since the merger with Compaq Computer Corporation.
Imaging and Printing
Imaging and Printing posted record first quarter revenue of $5.9 billion, an increase of 6% year-over-year.
During the first quarter, Imaging and Printing shipped 14.4 million hardware units, or over 1 million units a week, an increase of 12% year-over-year. Personal LaserJet unit shipments increased 22% year-over-year, while color LaserJet units grew 27%. Business inkjet shipments increased 28% over the prior year period. All-in-one and photo printers shipments grew 84% and 41% year-over-year, respectively, while digital camera unit shipments increased 42% over the prior year period.
Digital imaging revenue grew 5% year-over-year as strong camera and photo printer unit growth was offset by declining scanners and lower ASPs. Home hardware revenue grew 6%, reflecting solid holiday sales and the continued shift to all-in-one products. Supplies revenue grew 8% year-over-year against a tough compare and despite lowering channel inventory in the United States given supply chain improvements.
Operating profit was $968 million, another first quarter record, and represents 16.4% of revenue. Operating profit increased 6% year-over-year.
Revenue was $441 million, down 15% year-over-year. Operating profit was $29 million for the quarter versus $14 million in the prior year period. This represents the fifth consecutive quarter of operating profit and improving margins.
HP exited the quarter with $14.0 billion in gross cash, which includes cash and cash equivalents of $13.6 billion and short- and certain long-term investments of approximately $400 million. Cash generated from operations for the quarter was approximately $148 million after $271 million in cash payments related to restructuring quarter and certain one time items. Inventory ended the quarter at $6.5 billion, up $396 million year-over-year. Trade receivables decreased $600 million from the prior quarter to $8.3 billion. HP's dividend payment of $0.08 per share in the first quarter resulted in a cash use of $244 million. In addition, HP repurchased $256 million of stock.
HP expects revenues of $19.2 billion to $19.6 billion in its second fiscal quarter of 2004. The company expects EPS of approximately $0.34 on a non-GAAP basis, in line with current consensus estimates. HP also affirms current consensus EPS estimates of $1.43 on a non- GAAP basis for the full fiscal year 2004 -- a year-over-year increase of 23%.
The non-GAAP EPS expectations assume after-tax exclusion for quarterly charges of approximately $0.04 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.
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