Hewlett-Packard released its quarterly earnings report after the market closed yesterday. Many analysts weren't predicting good news, especially based on the recent discouraging reports from other major technology companies such as Cisco Systems (CSCO: Charts, News, Offers). However, everyone was in for a surprise when Hewlett-Packard revealed very strong earnings for the quarter, with a 15% increase in revenue and a 28% increase in profit from the previous year. Is this a sign that we will soon see increased improvement in the technology sector, or are the results from this one company not enough to indicate future technological trends?
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Hewlett-Packard is the largest maker of personal computers, and also the largest overall technology supplier, so it's understandable why so many look at HP first when analyzing the performance and health of the entire technology sector. HP is a huge company, with strength in many different areas. Although it is the largest PC producer, its printer ink division is its largest moneymaker, nearly twice as profitable as its PC division. Its software division is booming as well, doubling its profits since last year. Sales of laptops rose almost 50%, which is easy to believe as the market is increasingly moving towards laptops, and even so, HP's desktop computer sales continued to rise, increasing a solid 15%. HP's stock has risen about 2% in after hours trading, as investors are clearly happy with this report.
How was Hewlett-Packard able to produce such solid earnings numbers, when so many other technology companies have been faltering in recent months? One part of the reason is that HP does not have a very strong involvement in the financial services sector. HP of course conducts some business with financial companies, but it is estimated to only be about 4% of the company's total business. Therefore, some other companies such as IBM IBM and Cisco who are more involved in the financial services sector, these companies were hit very hard by the housing and mortgage crisis. In their conference call yesterday, HP's chairman claimed this has not had any impact whatsoever on the company, and its revenues from this sector were not diminished by this crisis. In addition, Hewlett-Packard has a strong presence in the foreign markets. Whereas most technology companies do about 50% of their business outside the United States, HP averages 67%. In many of these foreign countries, such as China and India, demand for technology is flourishing, and HP is benefiting from this by conducting a large majority of its business in these and other foreign countries.
Hewlett-Packard believes that the company will continue to improve. HP increased its earnings forecast for 2008, and is buying back $8 billion additional shares. HP has cut costs within the company, and the prices of computer components are falling, leading to more earning potential. There is still a large foreign demand for technology, and it seems that despite the local economy and credit concerns, consumers are still spending their money on technology. Because Hewlett-Packard's report and outlook is so different from so many other major technology companies, it doesn't seem that HP is a fair company on which to base one's speculation for the technology sector. It is clear that HP's business is thriving, but for many other companies, we must wait and see how they weather the storm, and how they recover from their recent struggles and a troublesome economic outlook.
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