PC Sales Help Hewlett-Packard Boost Earnings 31% in Quarter
Hewlett-Packard Co.’s earnings surged a surprising 31% as its fledgling PC business took off and sales rose faster than in the rest of the industry. The news lifted the stock of the No. 2 U.S. computer maker to a 10% gain.
Personal computer shipments more than doubled, vaulting the Palo Alto-based company to No. 6 globally among PC vendors, said analyst John Jones of Salomon Bros. Inc. Sales of related items, such as printers and servers, were also strong. “They are taking huge amounts of market share,” Jones said.
Net income in the fiscal first quarter rose to $790 million, or $1.50 a share, from $602 million, or $1.15, a year earlier. Wall Street expected net of $1.36 a share, based on the average estimate of 17 analysts surveyed by IBES International Inc.
Shares jumped $9, or 10%, to $95.25 on the NYSE, their highest since October. Trading of 8.08 million shares made the stock the most active on U.S. equity markets.
Revenue in the quarter ended Jan. 31 rose 27%, to $9.29 billion from $7.30 billion. By comparison, revenue at the world’s No. 1 computer maker, International Business Machines Corp., rose 10% in the latest quarter.
Hewlett-Packard’s success came at the expense of its rivals. IBM saw its market share slip to 8% in 1995 from 8.2% in ‘94, while the No. 1 PC maker, Compaq Computer Corp., held its market share at 10%.
“It’s an excellent company with excellent results, and that should be rewarded,” said Stephen Dube, an analyst with Wasserstein Perella Securities. “They are performing better than anyone else will.”
The PC business, while less profitable than others such as workstations, will help the company take advantage of its breadth of products that complement the personal computer, Jones said.
Orders of Hewlett-Packard’s computers--including home and business PCs, network machines and printers--rose 32% to $8.3 billion. In comparison, the worldwide PC industry rose 24% in 1995, according to market researcher Dataquest Inc.
The company, which has huge brand loyalty from its printer business, entered the home computer market in 1995, introducing its line of Pavilion PCs. The company’s unit shipments more than doubled in the year, and it jumped from about No. 11 in worldwide market share.
“We’re encouraged by outstanding demand in many of our businesses, especially in light of some slowing economies around the world,” Chairman Lewis Platt said.
Platt said there are challenges ahead as some major economies show signs of slowing, including those of the U.S. and Western Europe.
“Competition remains intense, pricing pressures are persistent and customer expectations continue to rise,” he said.
Dube said the slowing economies and a less spectacular PC market this year will contribute to slower revenue growth for fiscal 1996. He said sales growth will slow to less than 20% from the year ago by the fourth quarter.
Dube said that although Hewlett-Packard’s sales were exactly in line with what he expected, net income was higher because the company kept expenses down.
