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Hewlett-Packard (HPQ)

Q3 2012 Earnings Call

August 22, 2012 5:00 pm ET


Rob Binns

Margaret C. Whitman - Chief Executive Officer, President and Director

Catherine A. Lesjak - Chief Financial Officer and Executive Vice President


Benjamin A. Reitzes - Barclays Capital, Research Division

Bill C. Shope - Goldman Sachs Group Inc., Research Division

A.M. Sacconaghi - Sanford C. Bernstein & Co., LLC., Research Division

Kathryn L. Huberty - Morgan Stanley, Research Division

Keith F. Bachman - BMO Capital Markets U.S.

Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division

Brian G. Alexander - Raymond James & Associates, Inc., Research Division

Mark A Moskowitz - JP Morgan Chase & Co, Research Division

Maynard Joseph Um - Wells Fargo Securities, LLC, Research Division

Kulbinder Garcha - Crédit Suisse AG, Research Division

Shannon S. Cross - Cross Research LLC



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Welcome to the Third Quarter 2012 Hewlett-Packard Earnings Conference Call. My name is Monica, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the call over to Mr. Rob Binns, Vice President of Investor Relations. Rob, you may begin.

Rob Binns

Good afternoon. Welcome to our third quarter 2012 earnings conference call with Meg Whitman, HP's Chief Executive Officer. And Cathie Lesjak, HP's Chief Financial Officer.

Before handing the call over to Meg, may I remind you that this call is being webcast. A replay of the webcast will be made available shortly after the call for approximately 1 year. Some information provided during this call may include forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical facts are statements that could be deemed forward-looking statements, including, but not limited to, any projections of revenue, margins, expenses, earnings, earnings per share, tax provisions, cash flows, share repurchases, currency exchange rates, the impact of acquisitions or other financial items; any projections of the amount, timing or impact of cost savings, restructuring charges, early retirement programs, workforce reductions or impairment charges; any statements of the plans, strategies and objectives of management for future operations; and any statements concerning the expected development, performance, market share or competitive performance relating to products or services; and any statements of assumptions underlying any of the foregoing. A discussion of some of these risks, uncertainties and assumptions is set forth in more detail in HP's SEC reports, including its most recent Form 10-Q. HP assumes no obligation and does not intend to update any such forward-looking statements.

The financial information discussed in connection with this call, including any tax-related items, reflect estimates based on information available at this time and could differ materially from the amounts ultimately reported in HP's third quarter Form 10-Q. Revenue, earnings, operating margins and similar items at the company level are sometimes expressed on a non-GAAP basis and have been adjusted to exclude certain items, including, amongst other things, amortization of purchased intangibles, restructuring charges and acquisition-related charges. The comparable GAAP financial information and a reconciliation of non-GAAP amounts to GAAP are included in the tables and in the slide presentation accompanying today's earnings release, both of which are available on HP Investor Relations web page at Now I'll turn the call over to Meg.

Margaret C. Whitman

Thank you, Rob, and thanks to all of you for joining us today. Since our last earnings call, we've made progress on HP's turnaround. We are focusing the company on our strategic priorities and driving organizational change. These actions will make HP more efficient, easier to do business with and easier to work for. We have great opportunities in front of us, but we also have a number of challenges. Some of them are macroeconomic, others are industry trends and, frankly, some are about HP's execution.

Make no mistake about it, we're still in the early stages of a turnaround. There will be challenges ahead that could create some variability in performance. But I'm confident in our ability to work through them and get to where we want to be.

With that as a backdrop, let's take a look at the third quarter. Overall, we had a decent quarter. And again, we did what we said we are going to do. While revenue declined 5%, or 2% in constant currency, the trajectory of the decline flattened in Q3. This is encouraging in light of the deteriorating macroeconomic environment. At the same time, we exceeded the non-GAAP diluted EPS outlook of $0.94 to $0.97 that we gave in May. We delivered $1, beating the high end of our outlook by $0.03 a share on revenues of $29.7 billion.

When you look at our performance during the quarter, there were things that we did well, and there were things that we could have done better. Looking at the positives for the quarter, Storage, Networking, IPG and hyperscale servers delivered solid results. Our 3PAR business grew more than 60% in the third quarter, and we announced new enhancements to our HP StoreOnce product that delivered record-breaking backup performance. This technology was developed in HP Labs and includes more than 50 patent-pending innovations. In HP Networking, we delivered strong results, with revenue growth up 10% over the prior year, normalized for divestiture. Our Virtual Application Network technology is enabling administrators to automate changes in their networks and deploy an application in minutes instead of the weeks it currently takes. In Industry Standard Servers, we made progress in aligning our supply chain and engineering capabilities in hyperscale. This is building our competitive advantage to win and win profitably in this fast-growing market.

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