Beginning in first quarter, the company is reporting Business Intelligence and Information Management businesses as part of HP Software. On this basis, HP Software revenue was $666 million, up 11% from the prior year. BTO, formally reported as OpenView, increased revenue 19% to $548 million and other software, which includes OpenCall, Business Intelligence and Information Management, had revenue of $118 million.
The operating profit for the segment was $51 million or 7.7% of revenue. For comparative purposes, HP software would have reported revenue of $611 million and operating margin of 12.7% of revenue, excluding the impact of business reclassifications, but included the impact of acquisitions.
The software business includes the combination nascent and scaled businesses. The firm is pleased with the progress the BTO organization is making in integrating Opsware and expect to grow this business, as it helps customers manage their IT infrastructure. At the same time, the firm is expanding its Information Management and Business Intelligence businesses by investing in its solution portfolio and go to market presence.
HP Financial Services
The segment had revenue of $642 million, up 17% year-over-year and generated operating margin of 6.7%. The firm is encouraged with the growth in its core financing volume and portfolio assets over the last several quarters, as well as the strong performance in end of lease renewals and equipment sales.
Second Quarter Outlook
The firm expects Q2 fiscal 2008 revenues to be approximately $27.7 billion to $27.9 billion. Similar to last quarter and in light of the increasingly tough compares in PSG, the firm does not believe it is prudent to set investor expectations that its personal systems business can continue to grow at this pace, nor does it think that it appropriate to build the cost structure on that basis.
Given the firm’s significant international exposure, the results may be favorably or unfavorably impacted by currency. Assuming exchange rates stay roughly where they are and given the firm’s assumptions about hedging and pricing, the firm expects full year revenue will be approximately $113.5 billion to $114 billion.
Regarding earnings, there are few variables to keep in mind:
- The firm expects the component pricing environment to be less favorable in Q2 than it was in Q1.
- The firm estimates non-GAAP OI&E to be about 1 cent per share in Q2 and approximately 7 cent for the full year 2008.
- The firm expects to continue to repurchase shares in the coming quarters, however likely at a lower rate than in Q1. Share count will be impacted by the share price trends, option exercise patterns, common stock equivalents and repurchase activity. Currently, the firm expects somewhat steeper decline in Q2 and a more modest decline in weighted average shares outstanding in the second half of the year.
Keeping these factors in mind, the firm expects Q2 2008 non-GAAP EPS in the range of 83 cents to 84 cents.
Fiscal 2008 Outlook
- For the full year the firm expects non-GAAP EPS to be in the range of $3.50 to $3.54, representing growth of 19% to 21% on revenue growth of about 9%.
Key questions and answers from the first quarter fiscal 2008 earnings call conducted by Hewlett-Packard Co. on February 19, 2008.
Ben Reitzes (UBS): On the macro economic environment, going into the quarter, there was a lot of speculation about things having slowed in January and your guidance is indicating that. Can you confirm any linearity in the quarter? Can you comment on what gives you confidence on the raising guidance, given the economic backdrop?
Mark Hurd: We saw a good linearity at the HP level during the quarter, and there was no story in terms of one month being better than the others, so it was smooth. We have a good position from a geographic deployment perspective. When you look across our segments and our businesses, we had solid growth across all businesses and regions. Again, 69% of our revenue was outside the United States, so that''s probably an asset. We''ve got multiple stories to go on, remembering it''s only 31% of our revenue. But relative to what you see in some tech peers, we have an enterprise business, but frankly we''re putting more go-to-market resources in, and there is an effect to a degree of that investment in growth. We are putting more effort into the US than we have in the past. I''m not sure we''re the best person to compare specifically year-over-year comps, because of the effort we are putting in to improve our position. In the US, at the end of the quarter, we saw a little bit more caution in the consumer segment than what we''ve seen in the past. But again, in the context of the big picture on a global basis, we saw steady growth across all of our businesses and segments.
Cathie Lesjak: We have built capacity in our plans for fiscal 2008, so that we can adjust if the demand isn''t there that we are expecting. We have a good line of sight on our cost cuts. That combined with the investments that we have made to, improve our position in accounts, in terms of the share of wallet, and our recurring revenue, it gives us a lot of confidence in our EPS guidance.
Richard Gardner (Citigroup): This quarter, the supplies revenue growth accelerated, despite the fact you had a tougher year-over-year compare, and you were a little bit better than seasonal norms for the quarter. Can you give your views on what''s driving the strength in supplies revenue growth, and whether it was toner or ink?
Mark Hurd: There was no meaningful difference between toner and ink trends in the quarter. Again, we have the benefit of a large install base. During the quarter, we shipped our 500 millionth printer. When you look at the pure scale of the business and the size of the install base, it''s a big one and we''ve invested from a unit perspective into that base for a while. When you look at camera and you look at the appliances and we were very cautious about appliance placements. There are radical transformation we''re doing inside IPG. We''re working on a lot of cost that we''re trying to take out of the business. We''re investing in growth markets that are giving us subsequent growth that. Graphics and the Enterprise performed very nicely from a growth perspective for us in the quarter. We''re taking money and investing in those categories and it is showing up. At the same time, as we have a core business, we''re picking our spots, as to where we feel makes sense to work on.
David Bailey (Goldman Sachs): Your overall printer unit growth has come down four quarters in a row, and given the weakness that we see in inkjet demand across the industry, should we think this is a trend that should continue? Or are there some reasons that you should start to see some stabilization, as we go through the year?
Mark Hurd: We reported 1% unit growth. There is couple of points in unit growth tied up in the appliance piece. The laser growth in the quarter was 13%, so very significant double-digit laser growth. When you think a couple of points on the inkjet side, our total units would have come back through the appliance side, plus we left a couple of points on the table that we thought we could have. You got two different tails here. You’ve got laser business that''s 13% growth. You’ve got the inkjet business that has some of the characteristics. When we talk about inkjet units, we lose the context that what happens in SITEX growth and Indigo growth in the high-end commercial printing, has as much to do with our future. We may wind up with a slight disconnect in trying to model unit growth in inkjet to supplies growth, because what happens is, an Indigo printer when it goes out, is worth thousands and thousands of inkjet consumer printers going out. As those businesses grow, you can start to get a disconnect from what the supplies growth looks like, and what the inkjet unit growth looks like. You are going to hear us talking a lot more about trying to get you some transparency to what that page growth looks like, and the implications it has, long-term, on our supplies business.
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