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HP Profit Off 32%, Revenue Down 10%, Stock Up 14%

Investors still have the sensation that HP is coming back rather than dying

It could have been worse.

HP posted its Q2 results Wednesday when the market closed and came in with earnings down 32% on an adjusted bottom line that beat Wall Street’s tempered estimates.

All its geographies and all its product units punked out but the company claimed to be executing to plan and it did generate $3.6 billion in cash flow from operations, up 44%.

Dell’s profits last week cratered 79% after it cut prices to maintain market share. HP CEO Meg Whitman said that might work for a company going private but HP would buckle at the knees if that happened in its shop.

HP saw 55 cents a share, down 31%, versus 80 cents year-over-year, or 87 cents on an operating basis, down 11%, against expectations of a lowball 81 cents, on revenues down 10%, to $27.6 billion. Wall Street thought the company would do $28.12 billion.

“We beat the upper end of our non-GAAP diluted EPS outlook for the quarter by five cents per share, driven by better than expected performance in enterprise services and printing, coupled with the accelerated capture of restructuring savings and improvement in our operations,” Meg said.

Although she said she’s happy with where the company is, it needs to “do a better job growing our top line and protecting our margins.” That said, it’s “aggressively re-igniting” its channel partner program and has developed more than 700 joint business plans.

HP has been up against a soft PC market, a difficult pricing environment, a China that hasn’t been buying either servers or PCs, weaker IT spending, cloud demand it can’t fill and execution problems but its better-than-expected results in enterprise services and printing polished its margin a bit.

Whitman said the company’s new $169 Android tablet is helping but HP still needs to give the market the right PC, priced right. And she thinks the so-called Moonshot servers, given time to ramp, could “revolutionize the economics of the data center.” Software remains a challenge although Autonomy is apparently stabilizing. Industry standard servers have to improve. 3Par storage is reportedly hot.

In the quarter, which ended April 3, PCs were down 20%, returning a 3.2% operating margin. Commercial revenue was down 14%, and consumer revenue was down 29%. Total units were down 21% with desktops units down 18% and notebooks down 24%.

Printing revenue declined 1% year-over-year with an operating margin of 15.8%. Total hardware units were down 11%, Commercial hardware units were down 5% and consumer hardware units were down 13%.

HP’s Enterprise Group revenue declined 10% with a 15.9% operating margin. Networking revenue was up 1%, industry standard server revenue was down 12%, Business Critical Systems revenue collapsed 37%, storage revenue was down 13% and technology services revenue was down 3%.

Enterprise services revenue declined 8% with a 2.6% operating margin. Application and business services revenue was down 10%, and IT outsourcing revenue declined 6%.

Software revenue was down 3% with a 19.1% operating margin. Support revenue was up 12% while license revenue was down 23% and services revenue was down 5%.

HP Financial Services revenue was down 9% with a 3% decrease in net portfolio assets and a 24% decrease in financing volume. The business delivered an operating margin of 11%.

Investors still have the sensation that HP is coming back rather than dying. Its stock is up ~50% on the year and it cleared almost 14% in after-hours trading evidently because it raised its full-year outlook to $3.50-$3.60 a share, up 10% at the low end. The company has also been buying back shares.

Q3 is supposed to see 84 cents-87 cents or 56 cents-59 cents a share.

It’s depending on 3PAR, Big Data, servers and networking to make it look decent next year but it’s not making any promises. It says it’s managing costs better than it did in 2012 and improving its IT systems.

Whitman clings to her perspective that the HP turnaround is a “multi-year journey.”

“We have a long way to go” she said, “but we are on track to deliver on our fiscal 2013 non-GAAP diluted earnings per share outlook.”

The company’s got $13.6 billion in cash and is paying down debt. It said, “By the end of fiscal 2013, we expect our operating company net debt to be below pre-Autonomy levels and approaching our goal of approximately zero.”

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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