HP reports profits and record quarterly sales

Hewlett-Packard's net profit increased 34 per cent to $884m for its most recent quarter, boosted by strength in servers, printers and services.

For its fiscal second quarter, which ended 30 April, it had revenue of $20.1bn - a company record. That's a 12 per cent increase over the year-ago quarter and better than the average of $19.3bn expected by analysts surveyed by Thomson First Call.

Using Generally Accepted Accounting Principles, HP reported earnings of 29 cents per share. Excluding several one-time items, the company had net profit of 34 cents per share, matching First Call average estimates.

"Our business continues to fire on all cylinders," CEO Carly Fiorina said during a conference call. "We're gaining ground, despite competitive rhetoric."

The company also increased its estimated revenue for the remaining half of the fiscal year from $39.7bn to $40.7bn.

HP's results include a $105m settlement of a billing dispute with the government of Canada - money the company hopes to recover through legal actions against those HP believes responsible. Because some already has been paid, the settlement will result in a $70m charge, HP said.

The biggest fraction of operating profits continues to come from HP's imaging and printing business, which grew $28m to $953m. Revenue increased 11 per cent to $6.1bn for sales of products such as printers and digital cameras but growth was strong in particular for supplies such as toner for laser printers and ink for inkjets.

"I think what we are seeing is the cumulative impact of investing in categories where supplies are used even more strongly," Fiorina said. "It's clear colour printers use more supplies than monochrome printers, and colour is now going mainstream" among business buyers, she said.

HP's server and storage group reported a $62m increase in operating profit to $120m on revenue of $4bn. Within the group, the ProLiant server line, based on Intel's Xeon and AMD's Opteron, was strong, with revenue growth of 15 per cent, HP said.

ProLiant servers were subject to fierce price pressure, though, and average selling prices decreased, HP said.

HP's top server competitor, IBM, is resurgent after struggling in the 1990s and still has a commanding lead. In the first quarter of 2004, Big Blue said its server revenue grew 19 per cent.

In HP's high-end server line, the company is slowly moving customers from its own PA-RISC and Alpha processors to Intel's Itanium. The Itanium-based Integrity line accounted for 16 per cent of revenues and 26 per cent of unit shipments for high-end servers, Fiorina said.

Services operating margin increasing $32m to $329m on revenue of $3.5bn. Much of the boost came from managed services - through which HP runs clients' computing infrastructure - where revenue increased 50 per cent to about $650m, spokesman Brian Humphries said.

HP's software group, however, remained unprofitable. Expenses came from the company's research costs and acquisitions of software companies such as Consera Software, Novadigm and TruLogica.

On May 1, HP unified services, software, and storage and servers into its new Technology Solutions Group under Ann Livermore's leadership. Collectively, that group had operating profits of $400m on revenue of $7.7bn.

Personal computer operating profits grew $22m to $45m on revenue that grew 17 per cent to $6bn, HP said. Average selling prices there increased for both laptops and desktops, a favourable circumstance not experienced by rival Dell, Fiorina said.

HP has begun embracing the Linux operating system for desktop computers but the effort is very young, Fiorina said.

"We do see growing interest, in particular in the developing markets of the world. We have not yet seen real interest in the developed markets," Fiorina said. "I would call it interest, as opposed to demand we're willing to count on. We do have a number of pilot projects."

Stephen Shankland writes for CNET News.com.