HP Overcomes the Global Abandonment of the PC with Gains in Business Services

Michael Teague  |

With worldwide sales of personal computers slumping as consumers flock in droves to mobile devices and cloud services, Hewlett-Packard (HPQ), formerly the world’s leading PC-maker, has struggled over the past year along with other hardware and desktop-based tech companies.

Ahead of the company’s release of its earnings report late on Tuesday, expectations were low. Unsurprisingly, HP suffered a setback in the form diminishing PC sales, but surprised investors with some promising offsets to those losses.

For the second fiscal quarter, HP reported net income of $1.08 billion, or $0.55 per share on revenue of $27.6 billion, down from the prior year period during which the company earned $1.59 billion, or $0.80 per share on revenue of $30.7 billion. On an operating basis, however, HP earned $0.87 per share, comfortably ahead of expectations of $0.81 per share on revenue slightly over $28 billion.

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Furthermore, the company raised its guidance for fiscal Q3 to a range of $0.84 to $0.87 per share, ahead of current expectations of $0.83 per share. HP’s also raised its EPS estimate for the full year of 2013 from $3.50 per share to $3.60 per share.

While Wall Street had not expected much from the company, the earnings beat can be seen as a credit to former California gubernatorial candidate and CEO Meg Whitman’s turnaround plan that began when she took the helm more than a year ago.

Hewlett-Packard’s shares jumped 14 percent in late trading, to $24.19 in response to the news, after closing the day’s trading session on a 0.57 percent gain to $21.23.

The company’s declining PC sales were in large part supplemented by increases in its enterprise services unit as well success in its printing unit. With the inevitable drop in revenue from the formerly crucial personal systems division, down 20 percent over the last quarter, Whitman’s turnaround plan has involved extensive job-cutting and intensified focus on enterprise, providing IT services to businesses. Even the company’s under performing units saw margin increases throughout Q2

HP also used some of its cash to knock off almost $2 billion of its $4.7 billion of debt. The company’s shares have bounced back in 2013, advancing almost 50 percent since the beginning of the year.

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