<%@ LANGUAGE=VBScript %> <% Set asplObj=Server.CreateObject("ASPL.Login") asplObj.Protect Set asplObj=Nothing %> Excerpts from analysis of HP's 2Q07 business results (May 16, 2007)

Annex Bulletin 2007-21                              May 16, 2007

Excerpts from CONFIDENTIAL CLIENT edition (Annex clients click here)

Recent...

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INDUSTRY TRENDS

Updated 5/18/07, 2:00PM PDT, updates Market Update...

Analysis of Hewlett-Packard's Second Quarter FY07 Business Results

Per Ardua Ad Astra

("Through Hardships to Stars") 

Hurd's Best Quarter So Far, Yet CEO Exhorts HP Troops to Reach for Loftier Goals, Greater Heights

SCOTTSDALE, May 16 - HP continues to exceed everyone expectations, except perhaps its CEO's, who keeps trying to lower Wall Street's expectations.  The second quarter of FY07 has been the best quarter since Mark Hurd took over two years ago.  The company is firing on all cylinders, as all its units grew in the quarter, most in double digits.  But what impresses the most is that their profitability is actually growing faster than revenues.  This led to a record quarterly cash flow of $4.2 billion.

HP's net income was $1.78 billion, or 65 cents per share.  Excluding extraordinary items, the company had a per-share profit of 70 cents, up 17% over the year earlier earnings.

[chart here]

The company lifted a prior second-quarter profit forecast, following the inadvertent disclosure of financial data via e-mail to a single outside party.  HP said on May 8 it expected to report net earnings per share of 64 cents to 65 cents, and a profit before items of 69 cents to 70 cents.

But the IBM CEO, Mark Hurd, speaking on a post-release conference call, seemed intent on dampening the exuberance.  In a "per ardua ad astra" ("through hardships we reach the stars") leadership style, he exhorted his troops to reach for loftier goals and greater heights.  He said that restructuring and cost-cutting still have a ways to go.

[snip]

Business Segment Analysis

The best performing major product lines were the PCs, blades and the highly profitable printer supplies.  They grew 24%, 58% and 10% respectively.  The imaging and printing unit's operating margin of 16.3% topped all other product lines.  But all product lines improved their profitability.

Revenue growth in the Americas region was also impressive, nearly doubling from the first quarter (from 6% to 11%).

"I was highlighted by the fact we had strong revenue growth across the company," Hurd told the media and analysts.

[snip]

Outlook

HP increased its full year earnings estimate to $2.51 and $2.53 a share, from $2.35 to $2.40 a share. The company projected its revenue will increase to $100.5 billion to $100.9 billion at the Oct. 31 end of its fiscal year, up from a previous forecast of $98 billion to $99 billion.

The forecast sent H-P's shares higher in after-hours trading to $45.6, up from $45.2 at the May 16 close of trading.  HP shares are up more than 30% during the past 12 months.

[snip]

Not even the record $4.2 billion of stock buybacks seem to impress the insatiable Wall Street traders anymore (see the right chart).  Nor a promise of more such activities to come.

[snip]

Of course, even such huge amounts are pittance compared to stock buybacks by IBM and other S&P giants (see "To Buy (back shares) or Not to Buy?," May 2007).  So no wonder phlegmatic investors greeted them with a shrug.

[snip]

"That's all she wrote," we're afraid, for those of you who are NOT Annex Research clients, who are now reading the complete Annex Bulletin, along with many tables and charts that back up our forecast.  

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Happy bargain hunting!

Bob Djurdjevic

Market Update: IBM Stock Up, HP Down on Board News

SCOTTSDALE, May 18 - A day after the IBM, two things happened that helped the IBM stock move into record territory again.  First, a realization seemed to sink in on Wall Street that $11 per share in 2010, which IBM is now forecasting, will mean over $13 billion in net profit that year, up 42% from the $9.5 billion IBM earned in 2006.  And by the end of 2011, Big Blue's bottom line should be closing in on $15 billion.  That's a $4 billion increase to our five-year forecast, as we suspect is to most Wall Street spreadsheets (Annex clients click on right thumbnail chart a detailed forecast update).

Second, HP made an announcement this morning that a former IBM CFO John Joyce was joining its Board.  

So the HP shares promptly declined, while IBM's rose to new five-year records,  One could almost "see" the money flowing out of the HP stock into IBM (see above chart).  For more on the reasons for that, and John Joyce's legacy at IBM check out:

A Slam-Dunk of Bunk! Biggest Surprise: A Sharp Drop in ... delivering pure bunk, John Joyce has just scored a slam-dunk! A $557-million loss incurred by the Bug Blue...
 
"A Grand Slam Dunk of Bunk:" Analysis of IBM 4Q01 Results (Jan 18, 2002)
John Joyce, bravely drove the Big Blue ... truckloads of bad news. When Joyce pulled the same stunt two ... Jan 19, 2000 ). This afternoon, Joyce has outdone himself. Make it "A Grand Slam Dunk of Bunk"...
 
"Joyce Invents 'Rescoping':" Analysis of IBM Second Quarter Results (July 17, 2002) ...Joyce rejoiced (that) IGS’s backlog declined in the second quarter for the first time ever! That was evidently due to, what IBM now calls, “rescoping” - a “new English” word.  It has been coined to depict the old-fashioned customer reneging, or contract renegotiations, coupled with the usual cancellations and expirations...

For additional Annex Research reports, check out... Annex Bulletin Index 2007 (including all prior years' indexes)

Or just click on SEARCH and use "company or topic name" keywords.

Volume XXIII, Annex Bulletin 2007-21
May 16, 2007

Bob Djurdjevic, Editor
(c) Copyright 2007 by Annex Research, Inc. All rights reserved.
e-mail: annex@djurdjevic.com

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Capgemini: By Leaps and Bounds (Analysis of Capgemini's preliminary third quarter business results) 

Fujitsu: Good Performance Gets Better, More Global (Analysis of Fujitsu's first half FY2007 business results)

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Stock Buybacks: A Fading Fad (Dell, erstwhile "King of Fluff," suspends its stock buybacks)

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