Hewlett-Packard Company (HPQ)
Q2 2010 Earnings Call Transcript
May 18, 2010 5:00 p.m. ET

Executives

Jim Burns – Vice President of Investor Relations
Mark V. Hurd – Chairman and CEO
Catherine A. Lesjak – Chief Financial Officer

Analysts

Kathryn Huberty – Morgan Stanley
Bill Shope – Credit Suisse
Richard Gardner – Citigroup
Benjamin Reitzes – Barclays Capital
Toni Sacconaghi – Sanford C. Bernstein & Company
David Bailey – Goldman Sachs
Keith Bachman – BMO Capital Markets
Shannon Cross – Cross Research
Scott Craig – Bank of America/Merrill Lynch
Aaron Rakers – Stifel Nicolaus
Brian Alexander – Raymond James & Associates

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Second Quarter 2010 Hewlett-Packard Earnings Conference Call. My name is Michael and I will be your conference moderator for today''s call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. If at any time during the call, you require operator assistance, press star followed by zero and an operator will be happy to assist you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one. If your question has been answered and you wish to withdraw, please press star followed by two. Press star one to begin. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today''s call, Mr. Jim Burns, Vice President of Investor Relations. Please proceed.

Jim Burns

Good afternoon. Welcome to our second quarter earnings conference call with Chairman and CEO, Mark Hurd and CFO, Cathie Lesjak. This call is being webcast. A replay of the webcast will be available shortly after the call for approximately one year. Some information provided during this call may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties and actual future results may vary materially.

Please refer to the risks described in HP''s SEC reports, including our most recent Form 10-Q. The financial information discussed in connection with this call, including tax-related items, reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in HP''s second quarter Form 10-Q.

Earnings, operating margins and similar items at the company level are sometimes expressed on a non-GAAP basis and have been adjusted to exclude certain items, including amortization of purchase intangibles, restructuring charges and acquisition related charges. The comparable GAAP financial information and a reconciliation of non-GAAP amounts to GAAP are included in the tables and in the slide presentation accompanies today''s earnings release, both of which are available on the HP Investor Relations web page at hp.com.

Before I turn the call over to Mark, I want to remind you that we closed the 3Com acquisition on April 12. As a result, the 3Com business contributed approximately $50 million in revenue in Q2. We are in the process of integrating 3Com into the HP networking business.

We will continue to report the financial results of our networking business as part of the Corporate Investment segments for the remainder of this fiscal year and we will begin reporting those results as part of the ESS segment beginning in FY 2011. I''ll now turn the call over to Mark.

Mark V. Hurd

Good afternoon and thank you for joining us. Hewlett Packard had an exceptional quarter. Year-over-year, we added $3.5 billion of growth and over $500 million of net earnings. Revenue of $30.8 billion was up 13% over the prior year, non-GAAP EPS of $1.09 was up 27% and operating margins of 11.2% were up 80 basis points over the prior year.

Our growth this quarter was broad based. Americas and Asia Pacific each posted solid double digit growth. Europe also grew double digits, performing better than historical seasonality.

After many customers deferred hardware purchases in 2009, we are seeing strong growth in a number of our businesses. Industry standard service grew 54%. ProCurve grew 31%, PCs 21%, Storage 16%, Consumer printer hardware 16% and Commercial printer hardware grew 13%. We achieved this growth while investing in sales coverage and R&D, executing our transformation initiatives and absorbing 3Com.

Our enterprise business had solid growth this quarter fueled by ESS, which grew 31% over the prior year. We have built and acquired many assets over the recent years to serve our enterprise customers. We now have the industries premier arsenal of hardware, software and global services to deliver converged infrastructure and to manage and transform customers IT environments.

A good example of converged infrastructure is our Blade platform, which is the industry leader with over 50% share. An HP Blade Chassis can accommodate industry standard blades, mission critical blades, storage blades, even PC blades. All are designed to maximize computer density and minimize wiring and power consumption. We then can virtualize the networking ports with virtual connect and for all of the ports that are needed, we attach HP networking gear, which has been significantly broadened and enhanced with the acquisition of 3Com.