ACADEMIA
HP Reports Fourth Quarter 2007 Results
HP has announced financial results for its fourth fiscal quarter ended Oct. 31, 2007, with net revenue of $28.3 billion, up 15% from a year earlier and up 11% when adjusted for the effects of currency. In the fourth quarter, GAAP operating profit was $2.6 billion and GAAP diluted earnings per share (EPS) was $0.81, up from $0.60 in the prior-year period. Non-GAAP operating profit was $2.8 billion, with non-GAAP diluted EPS of $0.86 up from $0.68 in the prior-year period. Non-GAAP financial information excludes $132 million of adjustments on an after-tax basis, or $0.05 per diluted share, related primarily to amortization of purchased intangibles. GAAP and non-GAAP financial information include all stock-based compensation expense in both current and prior-year periods. 
"Strong performance across our businesses was highlighted by sharp improvement in our software segment," said Mark Hurd, HP chairman and chief executive officer. "We have added over $12 billion of new revenue this year. While we still have more work to do, HP is well positioned to make further progress in the marketplace."
Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below.
Revenue in the Americas grew 10% on a year-over-year basis to $11.9 billion. Revenue grew 19% in Europe, the Middle East and Africa to $11.6 billion. Revenue grew 20% in Asia Pacific to $4.8 billion. When adjusted for the effects of currency, revenue in the Americas grew 9%, revenue in Europe, the Middle East and Africa grew 12%, and revenue in Asia Pacific grew 14%. Revenue from outside of the United States in the fourth quarter was 67%, with revenue in the BRIC countries (Brazil, Russia, India and China) growing 37% over the prior-year period and accounting for 9% of total revenue.
Personal Systems Group
Personal Systems Group (PSG) revenue grew 30% year over year to $10.1 billion, with unit shipments up 31% on a year-over-year basis. This fiscal year, PSG grew $7.2 billion in revenue. Notebook revenue for the quarter grew 49% over the prior-year period, while desktop revenue grew 15%. Commercial client revenue grew 24% year over year, while Consumer client revenue increased 40%. PSG had exceptional growth in emerging markets with more than 100% growth in China, its third-largest market. Operating profit was $589 million, or 5.8% of revenue, up from $336 million, or 4.3% of revenue, in the prior-year period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue grew 4% year over year to $7.6 billion. On a year-over-year basis, supplies revenue grew 6%, Commercial hardware revenue grew 5% and Consumer hardware revenue declined 5%. Printer unit shipments increased 5% year over year, with Consumer printer hardware units up 3% and Commercial printer hardware units up 15%. Momentum in key growth initiatives continued, with printer-based multi-function devices up 26%. Operating profit was $1.1 billion, or 14.5% of revenue, flat from the prior year period of $1.1 billion.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported revenue of $5.2 billion, up 10% over the prior-year period. On a year-over-year basis, industry-standard server revenue increased 14%, with x86 blade revenue up 78%. Storage revenue grew 7%, with revenue growth of 6% in external disk storage, including 17% in the midrange EVA line. Business critical systems revenue increased 5%, with Integrity systems growth of 59% offset by declines in PA-RISC and Alpha. Operating profit was $693 million, or 13.5% of revenue, up from $502 million, or 10.7% of revenue, in the prior-year period.
HP Services
HP Services (HPS) revenue increased 7% year over year to $4.4 billion. Revenue in Technology Services, Consulting and Integration, and Outsourcing Services each grew 7% over the prior-year period. Operating profit was $526 million, or 12.0% of revenue, up from $505 million, or 12.4% of revenue, in the prior-year period.
HP Software
HP Software revenue doubled over the prior-year period to $698 million, led by strong growth from the businesses acquired in HP's purchase of Mercury Interactive. On a year-over-year basis, HP OpenView grew 24% excluding Mercury. Operating profit was $177 million, or 25.4% of revenue, up from $60 million, or 17.2% of revenue, in the prior-year period.
Financial Services
HP Financial Services (HPFS) reported revenue of $657 million, an increase of 21% year over year. Financing volume and net portfolio assets increased 23% and 15%, respectively, over the prior-year period. Operating margin was 7.3% of revenue, up from 6.4% in the comparable period last year.
Asset management
HP generated $3.6 billion in cash flow from operations for the quarter. Inventory ended the quarter at $8.0 billion, down 4 days over the prior year. Accounts receivable increased $2.5 billion over the prior-year period to $13.4 billion, up 3 days over the prior-year period. Accounts payable decreased $315 million over the prior-year period to $11.8 billion. HP's dividend payment of $0.08 per share in the fourth quarter resulted in cash usage of $206 million. HP utilized $2.0 billion of cash during the fourth quarter to repurchase approximately 42 million shares of common stock from the open market. HP exited the quarter with $11.6 billion in gross cash, which includes cash and cash equivalents of $11.3 billion, short-term investments of $152 million, and certain long-term investments of $129 million.
Full year fiscal 2007
Net revenue for the full fiscal year was $104.3 billion, representing growth of 14%, or 10% when adjusted for the effects of currency. GAAP operating profit was $8.7 billion and GAAP diluted EPS was $2.68, up from $2.18 in the prior-year period. Non-GAAP operating profit was $9.6 billion, with non-GAAP diluted EPS of $2.93 up from $2.38 in the prior-year period. Non-GAAP financial information excludes $690 million of adjustments on an after-tax basis, or $0.25 per diluted share, related primarily to the amortization of purchased intangible assets, in-process research and development charges, restructuring charges and pension curtailment gains. GAAP and non-GAAP financial information include all stock-based compensation expense in both current and prior-year periods.
Outlook
HP estimates Q1 FY08 revenue will be approximately $27.4 billion to $27.5 billion.
First quarter FY08 GAAP diluted EPS is expected to be $0.75, and non-GAAP diluted EPS is expected to be $0.80. Non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.05 per share, related primarily to the amortization of purchased intangible assets.
HP estimates FY08 revenue will be approximately $111.5 billion.FY08 GAAP diluted EPS is expected to be in the range of $3.12 to $3.17, and FY08 non-GAAP diluted EPS is expected to be in the range of $3.32 to $3.37. FY08 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.20 per share, related primarily to the amortization of purchased intangible assets.
Also today, HP announced that its board of directors has authorized an additional $8 billion for future repurchases of shares of HP common stock.
More information on HP's quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations website at www.hp.com/investor/home.
HP's Q4 FY07 earnings conference call is accessible via an audio webcast at www.hp.com/investor/q42007webcast.
"Strong performance across our businesses was highlighted by sharp improvement in our software segment," said Mark Hurd, HP chairman and chief executive officer. "We have added over $12 billion of new revenue this year. While we still have more work to do, HP is well positioned to make further progress in the marketplace."
Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below.
Revenue in the Americas grew 10% on a year-over-year basis to $11.9 billion. Revenue grew 19% in Europe, the Middle East and Africa to $11.6 billion. Revenue grew 20% in Asia Pacific to $4.8 billion. When adjusted for the effects of currency, revenue in the Americas grew 9%, revenue in Europe, the Middle East and Africa grew 12%, and revenue in Asia Pacific grew 14%. Revenue from outside of the United States in the fourth quarter was 67%, with revenue in the BRIC countries (Brazil, Russia, India and China) growing 37% over the prior-year period and accounting for 9% of total revenue.
Personal Systems Group
Personal Systems Group (PSG) revenue grew 30% year over year to $10.1 billion, with unit shipments up 31% on a year-over-year basis. This fiscal year, PSG grew $7.2 billion in revenue. Notebook revenue for the quarter grew 49% over the prior-year period, while desktop revenue grew 15%. Commercial client revenue grew 24% year over year, while Consumer client revenue increased 40%. PSG had exceptional growth in emerging markets with more than 100% growth in China, its third-largest market. Operating profit was $589 million, or 5.8% of revenue, up from $336 million, or 4.3% of revenue, in the prior-year period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue grew 4% year over year to $7.6 billion. On a year-over-year basis, supplies revenue grew 6%, Commercial hardware revenue grew 5% and Consumer hardware revenue declined 5%. Printer unit shipments increased 5% year over year, with Consumer printer hardware units up 3% and Commercial printer hardware units up 15%. Momentum in key growth initiatives continued, with printer-based multi-function devices up 26%. Operating profit was $1.1 billion, or 14.5% of revenue, flat from the prior year period of $1.1 billion.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported revenue of $5.2 billion, up 10% over the prior-year period. On a year-over-year basis, industry-standard server revenue increased 14%, with x86 blade revenue up 78%. Storage revenue grew 7%, with revenue growth of 6% in external disk storage, including 17% in the midrange EVA line. Business critical systems revenue increased 5%, with Integrity systems growth of 59% offset by declines in PA-RISC and Alpha. Operating profit was $693 million, or 13.5% of revenue, up from $502 million, or 10.7% of revenue, in the prior-year period.
HP Services
HP Services (HPS) revenue increased 7% year over year to $4.4 billion. Revenue in Technology Services, Consulting and Integration, and Outsourcing Services each grew 7% over the prior-year period. Operating profit was $526 million, or 12.0% of revenue, up from $505 million, or 12.4% of revenue, in the prior-year period.
HP Software
HP Software revenue doubled over the prior-year period to $698 million, led by strong growth from the businesses acquired in HP's purchase of Mercury Interactive. On a year-over-year basis, HP OpenView grew 24% excluding Mercury. Operating profit was $177 million, or 25.4% of revenue, up from $60 million, or 17.2% of revenue, in the prior-year period.
Financial Services
HP Financial Services (HPFS) reported revenue of $657 million, an increase of 21% year over year. Financing volume and net portfolio assets increased 23% and 15%, respectively, over the prior-year period. Operating margin was 7.3% of revenue, up from 6.4% in the comparable period last year.
Asset management
HP generated $3.6 billion in cash flow from operations for the quarter. Inventory ended the quarter at $8.0 billion, down 4 days over the prior year. Accounts receivable increased $2.5 billion over the prior-year period to $13.4 billion, up 3 days over the prior-year period. Accounts payable decreased $315 million over the prior-year period to $11.8 billion. HP's dividend payment of $0.08 per share in the fourth quarter resulted in cash usage of $206 million. HP utilized $2.0 billion of cash during the fourth quarter to repurchase approximately 42 million shares of common stock from the open market. HP exited the quarter with $11.6 billion in gross cash, which includes cash and cash equivalents of $11.3 billion, short-term investments of $152 million, and certain long-term investments of $129 million.
Full year fiscal 2007
Net revenue for the full fiscal year was $104.3 billion, representing growth of 14%, or 10% when adjusted for the effects of currency. GAAP operating profit was $8.7 billion and GAAP diluted EPS was $2.68, up from $2.18 in the prior-year period. Non-GAAP operating profit was $9.6 billion, with non-GAAP diluted EPS of $2.93 up from $2.38 in the prior-year period. Non-GAAP financial information excludes $690 million of adjustments on an after-tax basis, or $0.25 per diluted share, related primarily to the amortization of purchased intangible assets, in-process research and development charges, restructuring charges and pension curtailment gains. GAAP and non-GAAP financial information include all stock-based compensation expense in both current and prior-year periods.
Outlook
HP estimates Q1 FY08 revenue will be approximately $27.4 billion to $27.5 billion.
First quarter FY08 GAAP diluted EPS is expected to be $0.75, and non-GAAP diluted EPS is expected to be $0.80. Non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.05 per share, related primarily to the amortization of purchased intangible assets.
HP estimates FY08 revenue will be approximately $111.5 billion.FY08 GAAP diluted EPS is expected to be in the range of $3.12 to $3.17, and FY08 non-GAAP diluted EPS is expected to be in the range of $3.32 to $3.37. FY08 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.20 per share, related primarily to the amortization of purchased intangible assets.
Also today, HP announced that its board of directors has authorized an additional $8 billion for future repurchases of shares of HP common stock.
More information on HP's quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations website at www.hp.com/investor/home.
HP's Q4 FY07 earnings conference call is accessible via an audio webcast at www.hp.com/investor/q42007webcast. 