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The New HP Way: License to Print Cash

Hewlett-Packard
Hewlett-Packard

It's the kind of blowout quarter weary tech investors were hoping for. Just about everyone suspected that HP would beat estimates, thanks to ongoing momentum in the personal computer industry, as well as falling component prices, especially memory chips like DRAMs which have seen a 40% decline in some sectors.

But no one anticipated blockbuster numbers like this: HP beats the Street by a nickel a share, reporting 71 cents instead of the 66 cent consensus. Revenue also jumped in a big way: $25.4 billion instead of the $24.1 billion anticipated. Operating margins hit 9%. The experts were looking for something closer to 8.7%.

And when you break it down by business category, you'll see exactly where this strength is coming from. HP's Personal Systems Group, the company's PC unit, soared. PSG reported $8.9 billion in revenue, a staggering 29% pop, when analysts projected $8.1 billion, or 17% growth.

Imaging and Printing also saw some nice strength. The unit had enjoyed double-digit growth for the last four, straight quarters, and many were anticipating single-digit growth this time. Still, the $6.8 billion in revenue was better than expected, accounting for 8% growth and providing a glimmer of strength where few expected it.

Enterprise Storage and Systems also beat expectations: $4.5 billion in revenue against the $4.3 billion some on the Street expected.

HP shares are up about 40% over the past year, reaching a 7-year high earlier this month. Since that high of $49.84 on Aug. 8, HP shares have retreated, losing about 10%, following the rest of the market lower. But now those shares are roaring back ahead of Mark Hurd's conference call with analysts scheduled for 5p ET tonight.

If his comments echo the optimism we heard from Cisco Systems CEO John Chambers who said last week that the global economy is the best he's ever seen, this could be the catalyst investors were waiting for to turn slumping tech shares around.

Strong outlooks from Cisco, IBM, Microsoft, Inteland now HP -- which increased guidance and raised its own estimates today through the rest of this year -- haven't changed, even in the face of the dramatic, wrenching sub-prime mortgage mess exacting much more than a mere pound of blood on Wall Street. These companies are optimistic, generating mountains of cash; sitting on mountains of cash, and may become an investor's best friend in the coming weeks and months.

It's a drum I keep beating based on what I'm hearing here on the ground in Silicon Valley. I'm not saying to throw money blindly at all things tech; but the fundamentals remain strong, momentum remains strong, outlook remains strong. Tech is still a stock-picker's market; but it's gotten a lot easier picking those winners.

It's almost as if Wall Street is holding a sale -- not a blue-light special, but a blue-chip special in tech. This may indeed be the time to buy low.

Questions? Comments? TechCheck@cnbc.com