- BCS grew in every region with wins in the United States. Business in markets such as India and China also posted strong growth as these markets build out their infrastructure.
- Enterprise storage and service posted solid operating profit of $655 million, or 13.7% of revenue, up 390 basis points from the prior year period, led by stronger performance in storage and BCS, favorable component pricing, and expense discipline.

The company had a solid quarter in HP Services, with revenue of $4.6 billion, up 12% over the prior year period.

- Technology services delivered strong revenue growth of 10%, outsourcing and consulting and integration revenue increased 14% and 15% respectively.
- Operating profit was $508 million, or 11% of revenue, up 10 basis points year over year. The contribution of strong revenue performance from technology services was partially offset by workforce rebalancing, as the company initiated a plan to simplify the organizational structure within services.

HP Software revenue was $727 million, up 28% from the prior year.

- The company continues to take share in the management software layer, both organically and through acquisitions. BTO maintained its momentum with 36% year-over-year growth.
- Other software, which includes Open Call, Business Intelligence, and Information Management, grew 2% to $134 million. Solid growth in information management was largely offset by year-over-year declines in open call business.

- Software reported operating profit of $93 million, or 12.8% of revenue, up from $7 million in the prior year. Strong operating performance within BTO was partially offset by integration costs and investments in business intelligence.
- HP Financial Services had revenue of $685 million, up 25% year over year and generated operating margin of 6.9%.

HP owned inventory ended the second quarter at 32 days of supply, down two days compared with a year ago.

- With regard to channel inventory, the company ended the quarter with ESS down a half-a-week, PSG up roughly half-a-week, and IPG approximately flat year over year.
- Days sales outstanding increased to 43 days from 41 days one year ago.
- Days payable was 53 days, down from 54 days last year.

Property, plant and equipment were up $567 million year over year, and down 40 basis points as a percentage of revenue.

- Gross CapEx was $704 million, down 7% from the prior year period.
- On a net basis, CapEx was $599 million, flat year over year. Capital expenditures were primarily related to assets used in leasing business and investments in IT.

- Cash flow from operations accelerated to $4.8 billion and free cash flow was $4.2 billion.
- Year-to-date, cash flow from operations was $8 billion, up 92% year over year and free cash flow was $6.8 billion, up 131%. The company had a net cash outlay of about $1 billion for acquisitions.
- In addition, the company spent $2.8 billion on share repurchases, representing approximately 66 million shares. At the end of the quarter, the company had $4.5 billion remaining in the current share repurchase authorization.

- The company paid normal quarterly dividend, totaling $197 million.
- The company ended the quarter with a strong balance sheet, including total gross cash of $11.8 billion and net cash of $3.5 billion.

Third Quarter 2008 Outlook

- The company expects revenue to be approximately $27.3 billion to $27.4 billion, in line with typical seasonality.
- The company expects that the component pricing environment to be less favorable than it has been in the last several quarters.
- The company estimate non-GAAP OI&E to be approximately zero for the remainder of the year due to lower interest income and higher cost of currency hedging.
- The company expects to continue to repurchase shares in the coming quarters with a modest decline in weighted average shares outstanding in the second half of the year.
- With that in mind, the company expects non-GAAP EPS in the range of 82 cents to 83 cents per share.

Fiscal 2008 Outlook

- Given international exposure, results may be favorably or unfavorably impacted by currency. Assuming exchange rates stay where they are and given assumptions about hedging and pricing, the company expects full year revenue will be approximately $114.2 billion to $114.4 billion.
- The company expects non-GAAP EPS to be in the range of $3.54 to $3.58, representing growth of 21% to 22% on revenue growth of 9.5.

Key questions from the second quarter earnings call conducted by Hewlett-Packard Company on May 20, 2008.

Richard Gardner (Citigroup): You were up against a difficult 18% year-over-year compare on the ISS but it still looked like you were down more than normal seasonal in the quarter, despite the solid growth in blades. Could you provide color there?

Mark V. Hurd: We have picked our spots. We saw some spots where we thought we could take advantage of things and we did. There were also in there, blades being one of those, there were a couple of deals we missed that we would like to have had, and that is sort of an execution issue that we will be looking through. I would say it is the difficult compare. We picked our spots, some good numbers in there, for the example of the blades that we described, and a couple of deals that we would like to have had that we did not get.

Richard Gardner (Citigroup): Would you say that there has been any significant change in the competitive environment in terms of pricing, or how your competitors are approaching the marketplace that is factored into the performance?