HP powers on
At its analyst meeting in New York on Tuesday, CEO Mark Hurd and his executives deliver a steady stream of optimistic news and projections.
NEW YORK (Fortune) -- Under its relentless CEO Mark Hurd, Hewlett-Packard is boringly, reliably, efficient. It may be the perfect company for an era when information technology is routinely and unremarkably inserted into more and more of the mechanisms of business and society.
At HP's securities analyst meeting Tuesday, Hurd and his management team discussed the impressive numbers the company reported in November. While HP (Charts, Fortune 500) has forever been a superb technology company, during the tenure of the tough-minded Hurd, it seems to have received an overlay of rigorous management and efficient structure. "HP at its core is an engineering company," Hurd said at the meeting. "We are a fantastic engineering company." But he also added "We have tremendous DNA about serving our customers."
These things have been true for some time, but with the new discipline Hurd has brought with him they have been brought into the sun. The key has been an almost simple-minded insistence on execution, cost-cutting, and logic in corporate structure and sales.
Witness the fourth slide CFO Cathie Lesjak showed to the analysts, entitled "Segment operating profit trends." It shows that the printer group remains the company's crown jewel, with about $4.3 billion in profit for fiscal year 2007 (which ended in October). But we also saw that the PC group had over $2 billion in profits, up from essentially zero as recently as 2003. And the enterprise software group, which lost significant amounts of money through 2005, saw about $350 million in 2007 operating profit. Meanwhile, the storage and servers group made about $2 billion in profit and services $1.8 billion. Overall, operating profit grew to $9.6 billion company-wide - a 30 percent growth rate. That's pretty impressive for an operation with $104 billion in annual sales.
The PC group is where profit growth has been most amazing, as HP has been giving lessons to Dell (Charts, Fortune 500) in both product features and how to market them, while consolidating its role as the clear worldwide market share leader. In his talk, PC boss Todd Bradley reported that that HP has so much PC distribution that selling just one additional notebook in every store in its network worldwide would deliver incremental revenue of $80 million. The company is the number one PC company in India and sells in 450 cities in China. Overall, it sells 42 million PCs annually. PC operating profit grew about $600 million year over year, while printing, despite its size, only grew profit about $300 million.
A top analyst, sitting next to me in the ballroom of New York's Sheraton Hotel was both impressed and unsurprised by how the company sees its opportunities. "It's similar to what they said last year and the year before," he said. "The usual conservative bunch." He said that while the company is forecasting $3.75 in earnings per share, "they could easily exceed $4."
"Mark's really good at taking out costs," the analyst told me. "They're on a good trajectory. The biggest risk is macroeconomic. But the main thing they've been doing is cutting costs. As long as they keep doing that they're probably going to be fine."
As I write this, I'm listening to the division group heads explain how they're doing. "We still see enormous opportunities to grow," said Todd Bradley of the PC group. And Ann Livermore, who runs services, servers and software, talked about how strong is HP's position in servers, where it is by far the top seller worldwide in machines based on x86-type processors. She called it a "huge advantage for HP" that it has an overwhelmingly "x86 business and technology infrastructure."
The printer group's Vyomesh Joshi has yet to speak, but is likely to echo the gung-ho thinking of his peers. I know from talking to him elsewhere that he continues to see enormous opportunities to expand HP's printing businesses. Hurd himself, speaking earlier, said "The more content that exists, the more opportunity we think there is for that content to be printed...and we tend to like that."
Hurd's opening point in his own talk was that there is what HP calculates as a "$1.2 trillion market opportunity," as digital content growth expands across all industries. That gives HP chances to sell more printers, servers, storage, software and services.
What HP has to say isn't always sexy, but it is enormously impressive.
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