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HP Reports Q2 Results: Record Revenue of $20.1B, Up 12%

Press release from the issuing company

PALO ALTO, Calif.--May 18, 2004-- HP today reported financial results for its second fiscal quarter ended April 30, 2004, including record revenue of $20.1 billion, an increase of 12% year-over-year. Non-GAAP(1) operating profit was $1.3 billion for the quarter, an increase of 17% year-over-year. Non-GAAP diluted earnings per share (EPS) was $0.34 for the quarter, up 17% from $0.29 last year. Non- GAAP diluted EPS and non-GAAP net earnings include a $148 million adjustment on an after-tax basis, or $0.05 per diluted share. GAAP operating profit for the quarter was $1.1 billion, an improvement of $495 million or 77% year-over-year. GAAP diluted EPS was $0.29 per share, up 32% from $0.22 year-over-year. On May 13, HP Canada agreed to reimburse the Government of Canada $105 million in U.S. dollars. This settlement, net of a previously recorded amount of $35 million, had an impact of approximately 2 cents per share on second quarter GAAP and non-GAAP earnings. All non-GAAP financial information in this release is reconciled in the table below titled, "Non-GAAP Consolidated Condensed Statement of Earnings." During the quarter, and on a year-over-year basis, revenue in the Americas grew 4% to $8.4 billion; Europe grew 17% to $8.3 billion; Asia Pacific grew 22% to $2.4 billion; and Japan grew 21% to $967 million. On a total company basis, and when adjusted for the effects of currency, second quarter revenue grew 4% year-over-year. "HP delivered a strong quarter with solid revenue gains and continued profitability across the portfolio. We surpassed $20 billion in quarterly revenue for the first time in our history, with record second quarter revenue in PCs, enterprise hardware, software, services and imaging and printing. Cash flow from operations totaled $2.6 billion. These results demonstrate that we are winning and growing across the portfolio in an intensely competitive market," said Carly Fiorina, HP chairman and chief executive officer. Technology Solutions Group The Technology Solutions Group consists of Enterprise Storage and Servers, Software and HP Services. The group reported revenue of $7.7 billion, up 11% from the prior year period, with each business reporting record quarterly revenue in the second quarter. Operating profit for the quarter totaled $400 million, up $108 million year- over-year. Enterprise Storage and Servers Enterprise Storage and Servers reported revenue of $4.0 billion, up 8% year-over-year, led by 15% growth in Industry Standard Servers, which posted record revenue and unit growth of 32%. HP Superdome server orders and shipments achieved another quarterly record. Revenue in Intel Itanium-based HP Integrity servers almost doubled sequentially. Storage revenue totaled $897 million for the quarter, down 1% year- over-year, but up 7% sequentially. Strength in the high-end XP platforms and storage software was offset by discounting in the midrange and continuing declines in tape revenue. Operating profit for the quarter totaled $120 million, a $62 million year-over-year improvement, but down $34 million sequentially reflecting mix shifts within the businesses, strength in HP ProLiant server revenue and aggressive pricing. Software Software reported record quarterly revenue of $222 million, an increase of 23% year-over-year. HP OpenCall revenue increased 43% over the prior year period. HP OpenView revenue increased 15% year- over-year. Software reported an operating loss of $49 million, as the company continues to make strategic investments that support the HP Adaptive Enterprise strategy. HP Services HP Services revenue grew 15% year-over-year to $3.5 billion. This represents record quarterly revenue and the highest quarterly revenue growth since the merger. Managed services grew 50% over the prior year period. Revenue in customer support grew 9% and consulting and integration revenue increased 8% year-over-year. Operating profit was $329 million, or 9.4% of revenue, down from 9.8% in the prior year period, but up 1.2 points sequentially reflecting improvements in Customer Support and Consulting and Integration margins. Personal Systems Personal Systems revenue totaled $6.0 billion, up 17% year-over-year, with strong growth across all regions and categories. Desktop revenue increased 14% year-over-year, while notebooks grew 26%. This is the third consecutive quarter that PC year-over-year revenue growth surpassed HP's nearest competitor. Personal Systems reported an operating profit of $45 million, up from $23 million in the prior year period. Imaging and Printing Imaging and Printing posted record second quarter revenue of $6.1 billion, up 11% year-over-year. During the quarter HP shipped approximately 1 million printer units a week, bringing total shipments to more than 310 million units worldwide. Supplies grew 15% over the prior year period, and business hardware grew 10%. Home hardware revenue declined 4% year-over-year as a 38% increase in all-in-one unit shipments was offset by declining sales of single- function printers and scanners. Investments in high-growth printing categories such as digital photography, total print management services and digital publishing continued to gain traction. Operating profit of $953 million was also a second quarter record and represented 15.6% of revenue. Financial Services Revenue was $469 million, down 6% year-over-year, but up 6% sequentially. Operating profit was $35 million, increased from $21 million in the prior year period, and represented 7.5% of revenue, the highest level since the merger. Asset Management Cash generated from operations for the quarter was approximately $2.6 billion after $164 million in cash payments related to restructuring. HP exited the quarter with $15.1 billion in gross cash, which includes cash and cash equivalents of $14.7 billion and short- and certain long-term investments of approximately $400 million. Inventory ended the quarter at $6.3 billion, down $214 million from the prior quarter and up $530 million year-over-year. Trade receivables increased $209 million from the prior quarter to $8.5 billion. HP's dividend payment of $0.08 per share in the second quarter resulted in a cash use of $244 million. In addition, HP repurchased $348 million of stock and paid $562 million in net cash for acquisitions during the second quarter. Outlook HP is raising its second half 2004 revenue estimates to a range of $39.7 billion to $40.7 billion. Current analyst estimates are $39.7 billion. HP is also confirming second half non-GAAP earnings per share of $0.74. The non-GAAP EPS expectations assume after-tax exclusion for second half charges of approximately $0.08 per share from amortization of purchased intangible assets and acquisition-related charges.