HP Reports Small Revenue Gain, Initiates Company Transformation

PALO ALTO, CA—August 18, 2011—HP announced financial results for its third fiscal quarter ended July 31, 2011, as well as the commencement of a company transformation and acquisition of Autonomy.

Highlights:

• Third-quarter net revenue of $31.2 billion, up 1 percent from the prior-year quarter and down 2 percent when adjusted for the effects of currency

• Revising full year FY11 revenue estimates to $127.2 billion to $127.6 billion

• Exploring strategic alternatives for Personal Systems Group; shutting down operations for webOS devices and exploring strategic alternatives for webOS software

• Offer to acquire Autonomy, a global leader in infrastructure software for the enterprise, to accelerate expansion in rapidly growing enterprise information management market

HP unveiled the details of a plan to accelerate the business strategy it introduced in March. The plan introduced today will:

• Move HP into higher value, higher margin growth categories.
• Sharpen HP’s focus on its strategic priorities of cloud, solutions and software with an emphasis on enterprise, commercial and government markets.
• Increase investment in innovation to drive differentiation.

As part of the transformation, HP announced that its board of directors has authorized the exploration of strategic alternatives for the company’s Personal Systems Group. HP will consider a broad range of options that may include, among others, a full or partial separation of PSG from HP through a spin-off or other transaction. (See accompanying press release.)

HP will discontinue operations for webOS devices, specifically the TouchPad and webOS phones. The devices have not met internal milestones and financial targets. HP will continue to explore options to optimize the value of webOS software going forward.

In addition, HP announced the terms of a recommended transaction for all of the outstanding shares of Autonomy Corp. plc for £25.50 ($42.11) per share in cash. Autonomy’s software powers a full spectrum of mission-critical enterprise applications. The addition of Autonomy will accelerate HP’s ability to deliver on its strategy to offer cloud-based solutions and software that best addresses the changing needs of businesses.

“We’re focused on improving performance across the business,” said Léo Apotheker, HP president and chief executive officer. “HP is taking bold, transformative steps to position the company as a leader in the evolving information economy. Today’s announced plan will allow HP to drive creation of long-term shareholder value through a focus on fewer fronts, thereby improving its ability to execute, invest in innovation and drive a higher-margin business mix.”

Earnings highlights

For the quarter, net revenue of $31.2 billion was up 1 percent from the prior-year period as reported and down 2 percent when adjusted for the effects of currency.

GAAP diluted earnings per share (EPS) was $0.93, up 24 percent from $0.75 in the prior-year period. Non-GAAP diluted EPS was $1.10, up 2 percent from $1.08 in the prior-year period. Non-GAAP financial information excludes after-tax costs of approximately $0.17 per share and $0.33 per share in the third quarter of fiscal 2011 and 2010, respectively, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges. Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below.

“Our outlook reflects the challenges that we face across our businesses,” said Cathie Lesjak, HP executive vice president and chief financial officer. “Dealing with these challenges will take time, but HP will navigate through the transformation to become a more focused, streamlined company.”

Trends and regional performance

HP’s Commercial businesses remain healthy with 5 percent revenue growth year over year. HP’s Consumer businesses, within PSG and IPG, were collectively down 15 percent year over year.

Third quarter revenue was flat year over year in the Americas as well as in Europe, the Middle East and Africa at $14.1 billion and $11.0 billion, respectively. Revenue in Asia Pacific was $6.1 billion, representing a 9 percent increase year over year. When adjusted for the effects of currency, revenue was down 2 percent in the Americas, down 5 percent in Europe, the Middle East and Africa and up 1 percent in Asia Pacific.

Revenue from outside of the United States in the third quarter accounted for 65 percent of total HP revenue. BRIC countries (Brazil, Russia, India and China) generated revenue of $3.7 billion, up 12 percent over the year-ago period, accounting for 12 percent of total HP revenue.

Business group highlights

• Imaging and Printing Group (IPG) revenue declined 1 percent year over year, with a 14.7 percent operating margin. Commercial revenue was down 7 percent year over year ,with commercial printer hardware units up 1 percent. Consumer printer hardware revenue was up 1 percent year over year on 7 percent unit growth. IPG continued to drive innovation and momentum with digital presses and web-connected printers.

• Personal Systems Group (PSG) revenue declined 3 percent year over year with a 5.9 percent operating margin. PSG remains the PC market leader in terms of units, revenue and profit share. Commercial Client revenue grew 9 percent and Consumer Client revenue declined 17 percent.

• Financial Services revenue grew 22 percent year over year with a 9.4 percent operating margin. Financial Services continued to see its strong performance driven by both double-digit growth in lease volume and a healthy improvement in portfolio assets.

Outlook

For the fourth quarter of fiscal 2011, HP estimates revenue of approximately $32.1 billion to $32.5 billion, GAAP diluted EPS of approximately $0.44 to $0.55, and non-GAAP diluted EPS of approximately $1.12 to $1.16.

Fourth quarter fiscal 2011 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.61 to $0.68 per share, related primarily to restructuring and shutdown costs associated with webOS devices, the amortization and impairment of purchased intangibles, restructuring charges and acquisition-related charges.

HP expects full year fiscal 2011 revenue in the range $127.2 billion to $127.6 billion, GAAP diluted EPS of $3.59 to $3.70, and non-GAAP diluted EPS of $4.82 to $4.86.

Full year fiscal 2011 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $1.16 to $1.23 per share, related primarily to restructuring and shutdown costs associated with webOS devices, the amortization and impairment of purchased intangibles, restructuring charges and acquisition-related charges.

More information on HP’s quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at www.hp.com/investor/home.

About HP
HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. The world’s largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and IT infrastructure to solve customer problems.

Source: HP.