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PCs help HP to a profit despite soft US revenue

Hewlett-Packard (HP) reported a healthy profit for its first quarter of 2003, helped by a return into the black for its PC business.

Revenue fell slightly below forecasts, however, due to weak spending among businesses in the US and Latin America, the company said.

HP's net earnings for the quarter came in at $877m (£558m), excluding charges and adjustments, on revenue of $17.9bn (£11.4bn). Analysts had been expecting revenue of $18.5bn (£11.8bn), according to First Call/Thomson Financial.

Including the adjustments, HP reported net earnings of $721m (£459m) for the quarter ending 31 January.

HP's personal systems group reported an operating profit of $33m (£21m) for the quarter, compared to a loss of $68m in the previous quarter. Sales of consumer PCs and handheld computers increased "significantly", though notebook, business PC and workstation sales declined.

The enterprise systems group managed to narrow its operating loss for the quarter to $83m (£53m) thanks to improved cost management, from a loss of $129m in the previous quarter. However, revenue for the group dropped 6% to $3.7bn (£2.4bn). Carly Fiorina, HP's chairman and chief executive officer, said the group is on track to become profitable in the second half of 2003.

The company's printing and imaging business, which generates the bulk of its profit, benefited from strong holiday sales but was hurt by weak spending by enterprises. Revenue totalled $5.6bn (£3.6bn), flat compared with the immediate prior quarter, with operating profits of $907m (£577m), down by 4%.

Services revenue came in at $3bn (£1.9bn), down 3%, and operating profit in that group fell 6% to $341m (£217m). HP said its services business maintained double-digit profit margins.

"Our revenue shortfalls were largely confined to the US market as weak commercial spending continued," Fiorina said.

Overall the company reported its best profits since the completion last year of its merger with Compaq Computer.

During the quarter, HP saved $734m (£467m) as a result of changes in the wake of the merger, 14% more than the company had expected to save, Fiorina said. Savings following the merger have come from workforce reductions, procurement savings, reduced logistics costs and facilities closures.

Predicting how IT spending will fare for the remainder of the year is tough, Fiorina said, with market survey projections varying widely from a decline in spending of 5% to an increase of 6%.


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