HP's Glad Fourth-Quarter Tidings

Hewlett-Packard CEO Mark Hurd has a simple credo: Follow the numbers. His insistence that employees focus on the bottom line is beginning to pay off.

On Nov. 18, the tech giant countered a spate of recent dour warnings from tech bellwethers, saying fiscal fourth-quarter results would beat analysts' forecasts. HP also issued a surprisingly upbeat outlook for fiscal 2009. "It's surprising, and not," says John Madden, a research director at Ovum in Boston. "This is a company with great financial discipline, and that certainly helps when the economy takes a tumble."

Palo Alto (Calif.)-based HP (HPQ) said profit for the quarter ended Oct. 31 was $1.03 a share, excluding items such as restructuring and acquisition charges related to its recent takeover of tech outsourcing firm Electronic Data Systems. Wall Street was expecting earnings of $1.00 a share, excluding items. "HP delivered another solid quarter as it continues to benefit from its global reach, diverse customer base, broad portfolio, and numerous cost initiatives," Hurd said in a statement. "Our ability to execute in a challenging marketplace differentiates HP, enabling it to increase share, expand earnings, and emerge from the current economic environment as a stronger force."

Cost-Cutting Pays Off

HP didn't elaborate which areas of its sprawling tech empire, ranging from PCs and printers to services and software, were doing well. The company is due to report full results on Nov. 24. Yet the preliminary results stood in stark contrast to announcements from tech giants Intel (INTC) and Cisco Systems (CSCO), which earlier this month pointed to a sharp slowdown (BusinessWeek.com, 11/12/08) in virtually all sectors of the PC and server markets. Retailers Best Buy (BBY), Circuit City, and Target (TGT) also have indicated consumers are conserving cash amid credit market turmoil. "There is just enough demand out there to feed some of the vendors who positioned themselves well ahead of time," says Roger Kay, president of tech analyst firm Endpoint Technologies Associates.

While tech stocks surged on Nov. 18, led by HP's 14.5% gain, much of the rest of the industry isn't faring nearly as well. HP is benefiting from Hurd's near-obsessive cost-cutting and what analysts consider world-class management of sales and supply chain. In what Hurd calls "data-driven decision-making," every segment of the company now uses metrics regularly to determine which hardware, software, and services merit the most attention. Research and development has been aligned closely with product planning, while a revamped sales organization has been given greater incentive to succeed, with "specialists" bearing responsibility for growth in their particular area of interest. HP also attributed some of its performance to global reach. About 70% of revenue comes from outside the U.S.

Looking ahead, analysts say HP stands to benefit from Hurd's strategic investments in areas such as managing corporate computer networks, which offer new sources of recurring revenue. The company in September completed its purchase of EDS, which specializes in providing IT services to corporations.