H-P's Report Is Retort to Critics

On the downside, seasonal patterns usually lead to a sequential reduction in revenue in the first quarter, and H-P expects its tax rate to edge up one percentage point to 20% next year. Also, the weakened dollar will increase some of H-P's costs.

Finally, H-P said it will take restructuring charges of about 4 cents a share in the first half of the year due to planned layoffs (the charges are already included in its earnings outlook).

The workforce reduction will start in the first quarter. But a company spokesperson declined to say which business lines will be affected or to estimate the size of the layoffs.

Commenting more broadly on the tech spending environment, Fiorina recalled that in the prior quarter, she had said the enterprise environment "appeared to have taken something of a stutter-step." Since then, she said, "I think the enterprise environment specially has improved."

Over the past year, demand has shifted from consumer to the enterprise, she added. "In FY03 during this time we saw a stronger consumer market and a weaker enterprise market. And at this juncture we see an improving enterprise market and a so-so consumer market."

Asked her opinion of sales momentum heading into the holidays, Fiorina said, "My current read of the consumer season is not bad but not spectacular."

H-P's storage and server unit, which stumbled in the prior quarter, recovered to see revenue grow 22% sequentially to $4.1 billion, with operating earnings of $107 million.

Sales of PCs increased 9% to a record $6.5 billion, spurred by 11% unit growth; average selling prices were stable. The unit's operating profit of $78 million, or 1.2% of revenue, was the best since 2000, according to H-P.

Imaging and printing saw more muted revenue growth of 5% to $6.5 billion. H-P said it shipped 14 million printers, making the quarter its strongest ever measured by units. Operating earnings of $1.1 billion also set a quarterly record.

Services revenue increased 13% from year-ago levels to $3.7 billion, with operating profit of $367 million.

Finally, software revenue increased 25% to $277 million, but the sector still reported a $5 million operating loss.