Computer giant Hewlett-Packard Co.'s fiscal fourth-quarter earnings more than doubled as its struggling corporate computing division recorded an operating profit for the first time since HP agreed to buy Compaq Computer Corp. more than two years ago.
The quarter also was the first since the $19-billion deal closed in May 2002 in which all four of the company's main business units were in the black.
That fulfilled a high-stakes pledge from Chief Executive Carly Fiorina, who has come under fire for losing money in business and personal computing.
The Palo Alto-based company said Wednesday that it earned $862 million, or 28 cents a share, on revenue of $19.9 billion in the three months ended Oct. 31, up from $390 million, or 13 cents, in the same period last year on revenue of $18.1 billion.
"Overall, it was positive," said Chuck Jones, a technology analyst in San Francisco with Stein Roe Investment Counsel, which manages $8 billion in assets and owns HP shares.
HP said the healthy results would continue, with first-quarter revenue rising at least 6.7% year over year to $19.1 billion to $19.5 billion. Operating profit for fiscal 2004 will jump 22% to $1.42 a share, the company predicted.
But analysts remained skeptical that HP could keep making gains in its core computer businesses, given the cutthroat competition from Dell Inc. and IBM Corp.
"Sustained profitability is still unproven for HP in the corporate and PC segments," said Nick Nilarp, director of corporate finance with Fitch Ratings in New York.
HP's business computing unit, which has lost $1.4 billion over the last three years, posted a fiscal fourth-quarter operating profit of $106 million on sales of $4.1 billion. That amounted to an operating margin of only 2.5%.
Meanwhile, the PC group, which has lost $887 million over the last three years, had an operating profit of $21 million on $6 billion of revenue, for a mere 0.35% operating margin.
"We think HP's long-term fundamentals are still plagued by structural issues," Ali Irani of CIBC World Markets wrote in a research report. "With the company squeezed between the successful models of IBM and Dell, HP is still seen as a market share target."
Analysts quizzed Fiorina about whether the two key computer units would continue to be profitable.
"While we made very good improvements in these businesses, neither are where we want them to be," she said during a conference call. "In the PC business especially, given its seasonal nature, the first quarter is going to be a tough one in PCs. But think of us as managing both these businesses over the full year."
Then Chief Financial Officer Bob Wayman piped up.
"Our plans call for them to be profitable each quarter," he said without elaborating.
As usual, HP's Imaging and Printing Group contributed the bulk of the company's earnings, recording an operating profit of $1 billion on revenue of $6.2 billion.
For fiscal 2003, HP earned $2.54 billion, or 83 cents a share, contrasted with a loss of $928 million, or 31 cents, in 2002. Sales were $73.1 billion, up 1% from $72.4 billion a year earlier.
HP shares gained 56 cents to close at $22.21 on the New York Stock Exchange before the earnings were announced. They rose to $22.90 in after-hours trading.