H-P Hits One Out

H-P's success in the PC business owed to strong consumer sales during the holidays and the continuing struggles of rival Dell(DELL Quote), which recently brought founder Michael Dell back as CEO in hopes of reviving the company's fortunes.

In the October-December period, H-P beat out Dell for the title of the world's No. 1 PC maker for the second quarter in a row.

H-P also got a lift from its printer business in the first quarter, with sales up 7% year over year and a 15.3% operating profit.

In the post-earnings conference call, Hurd brushed off fears that its profit margins could suffer if it opts to match rival Eastman Kodak's(EK Quote) forthcoming low-cost inkjet printer cartridges. Hurd said H-P's focus on cost structure gives it the flexibility to participate in the market however it feels is appropriate.

"To be very blunt, I like our chances to be very competitive," said Hurd.

Since taking over as CEO in March 2005, Hurd has made restructuring the company's costs a key priority, slashing 10% of the workforce and consolidating its real estate assets, among other things.

In the first quarter, H-P said operating margin was 7.3% vs. 6.6% at the same time a year ago. Hurd recently set a target of 9% to 9.5% operating margins for fiscal 2008.

Not all of H-P's businesses are performing flawlessly. Hurd acknowledged that there remains work to be done in H-P's enterprise storage and servers group, where the company experienced declines in its tape business and high-end Unix servers, despite strong sales of industry standard servers.