In a quarter that has wounded so many tech giants, Hewlett-Packard's ( HPQ) bottom-line beat on Tuesday had its investors feeling giddy amid another down session in tech stocks.

Thanks to strong profit margins across many of its key businesses, H-P boosted its net income by more than 50% year over year, with an EPS several cents above Wall Street estimates -- the latest in a string of impressive results produced by the company's restructuring plan.

"HP is a company that we think is really in a sweet spot right now," said Mark Hillman, the chief information officer of Hillman Capital Management, which has a long position in the company. "We think CEO Mark Hurd is just getting started as far as making the enterprise more efficient and more profitable."

The company achieved 24.8% gross margins and 8% operating margins during its fiscal second quarter, its highest level in years, according to analysts.

And the prospect that even more savings lie ahead was enough to put aside, at least for the moment, any questions about the company's top line, which grew 5% year over year to $22.6 billion during the quarter.

Shares of H-P were recently up 3.7%, or $1.14, at $32.25 on Wednesday morning.

By contrast, shares of Intel ( INTC), Dell ( DELL) and Microsoft ( MSFT) are all down or flat this earnings season.

A tech landscape clouded by slowing PC demand and rumors of price wars has contributed to the Street's glum outlook. (Indeed, the Nasdaq was falling another 1% on Wednesday.) But investors appeared confident that the course set by H-P's management would protect the company from any unpleasantness.

"In the current environment, HPQ could be one of the best defensive stocks, providing both a shelter in the midst of a battered tech tape and a solid opportunity for upside," wrote Goldman Sachs analyst Laura Conigliaro in a note to investors raising her earnings estimates for H-P. (Goldman Sachs has received compensation from H-P for investment banking and noninvestment banking services in the past 12 months and is a specialist in H-P securities).

To view Street Insight's video review of Hewlett-Packard, please click here .

Conigliaro said the company's core strengths in the consumer market, emerging markets in Eastern Europe and its channel distribution model are all assets that rival Dell does not possess. These, she said, should insulate H-P from the effects of the price cuts that Dell announced last week.

Another asset helping H-P in the current tech environment is the progress it has made realigning its cost structure.

H-P's printer business notched 15.5% operating margins in the fiscal second quarter. Not only was this up from the 12.7% level of a year ago, it was above the 13% to 15% range that H-P has set for its printer group to achieve next year.

The server-and-storage group also reported strong profitability, boosting operating margins to 7.5% from 4.3% a year ago, as did the PC business, whose 3.6% margin was up from last year's 2.3%.

Hurd stuck by the company's margin targets for 2007, despite the fact that many of the businesses are already within or above the desired range. But investors and analysts seemed convinced that management is being conservative and that H-P had further room for margin improvement.

"The company is only just over halfway done with its planned job cuts, which means it is beating margin forecasts without as much help from restructuring," wrote UBS analyst Benjamin Reitzes in a note to investors Wednesday.

Thus, said Reitzes, H-P has even more restructuring savings slated to hit the bottom line in the coming quarters. And H-P will be able to use these forthcoming restructuring benefits later on to offset pricing pressure from companies like Dell. (UBS makes a market in HP securities and has provided H-P with investment banking services within the past three years and noninvestment banking services within the past 12 months).

As if on cue, H-P announced early Wednesday that it is consolidating its 85 worldwide data centers into six U.S. locations, a move that it expects will save $1 billion in IT costs over the coming years.

Revenue in H-P's PC group rose 10% year over year in the second quarter, thanks to strong double-digit sales growth in notebooks and consumer PCs. Hurd said that H-P had gained 1.4% of PC market share worldwide and 2% in the U.S. during the quarter.

"The market growth continues to be led by a shift to mobility, strength in emerging markets and consumer," Hurd told analysts in a conference call following the earnings release Tuesday.

Printer supplies were another big revenue engine in the fiscal second quarter, increasing 10% year over year, following on the first quarter's impressive 11% growth.

Less stellar was the 3% growth in printer hardware units during the second quarter. And the servers-and-storage division managed to log only a 2% revenue growth in the quarter, despite the fact that H-P's use of Advanced Micro Devices ( AMD) Opteron processors provides it with a big advantage over Dell, whose servers use Intel chips exclusively.

Hurd said he was not satisfied with this performance and that H-P was beefing up its sales force to accelerate revenue growth.

What level of overall sales growth the company is ultimately capable of generating is still an open question.

Eventually, "HP's ability to continue to increase its margins could become increasingly challenging," wrote Needham and Co. analyst Charlie Wolf in a note to investors. "When that occurs, possibly by 2007, mid-single digit revenue growth will not be sufficient to propel the stock higher." Needham does not have any business relationships with H-P.

According to Wolf, who rates H-P hold, a 7.5% revenue-growth rate (which is above the 4% to 6% growth rate that H-P has set for 2007) and 8.5% operating margin produces a fair price of $26 for H-P's stock.

But with profit climbing 50% as it did last quarter, most investors have plenty of good news to focus on.

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