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UPDATE 3-HP enterprise sales pickup stirs turnaround hopes

Poornima Gupta
Tuesday, 26 Nov 2013 | 6:41 PM ET

(Adds details on margin and forecast)

SAN FRANCISCO, Nov 26 (Reuters) - Hewlett-Packard Co beat revenue forecasts as sales growth in its enterprise group inspired cautious optimism about the company's turnaround plan, and its shares rallied more than 7 percent.

Revenue from the sprawling enterprise group, which Chief Executive Meg Whitman is focused on expanding as personal computer sales crumble globally, climbed 2 percent, aided by a 10 percent rise in server sales and 3 percent growth of the networking business.

Wall Street had low expectations for HP following a disappointing third-quarter performance, and after rivals like International Business Machines Corp and Cisco Systems Inc had reported poor results.

The pickup in enterprise hardware revenue in the fiscal fourth quarter - coming after a 9 percent slide in sales from the same division in the previous three months - helped shore up confidence in Whitman's turnaround effort.

"I saw better than expected performance out of the enterprise group, which we expected to be weak given the results from peers such as IBM and Cisco," said Edward Jones technology analyst Bill Kreher. "There is some hope given that the company was able to jump over what was admittedly a pretty low hurdle."

He cautioned, though, that any signs of a turnaround will remain uneven.

But the company's operating margins eroded. Non-GAAP operating margin slipped to 9 percent in the quarter from 10.4 percent a year earlier, reflecting aggressive competition from rivals such as Dell Inc and Lenovo Inc.

Whitman, who took the helm of the world's largest PC maker more than a year ago, is trying to wean the Silicon Valley icon off sales of personal computers. Last month, she told Wall Street she expects revenue to stabilize in 2014, with some areas of growth for the company.

With the help of job cuts and expansion into markets and areas with longer-term potential such as enterprise computing services, the CEO is trying to revive growth.

Shares in HP climbed to above $27 in extended trading, from a close of $25.09 on the New York Stock Exchange.

BRIGHT SPARKS

Revenue fell across most of HP's business divisions except the enterprise group, whose sales edged up to $7.6 billion. Sales from HP's largest, PC-focused unit slipped 2 percent to $8.58 billion while the printing division's sales dipped 1 percent to $6.04 billion.

In August, Whitman replaced the head of its enterprise group Dave Donatelli with Bill Veghte who had joined HP from Microsoft. At the time, she primarily blamed poor execution by the division for a disappointing fiscal third-quarter result.

On Tuesday, Whitman sounded a more upbeat note for HP's second-largest division by sales.

"We have more to do on the margins but we are happy," Whitman said in an interview. "We had a good quarter in networking, particularly in China and in Europe."

HP faced an aggressive pricing environment and a tough global economy but there were "some bright spots in Asia and in some of our emerging markets," she added.

Overall, the company posted revenue of $29.1 billion, beating the $27.9 billion expected by analysts, according to Thomson Reuters I/B/E/S.

Non-GAAP net earnings fell 14 percent to $2 billion in the quarter or $1.01 per share, versus the $1.00 analysts had expected on average.

Looking forward, HP said it expects non-GAAP earnings per share of 82 to 86 cents for its fiscal first quarter, with the top end coming in slightly higher than 85 cents expected by Wall Street analysts.

(Editing by Edwin Chan and Richard Chang)

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