Tech Check

HP's One-Two "Punch" With Earnings And EDS

Hewlett-Packard's headquarters in Palo Alto, California.

Talk about a busy couple of days for HP: yesterday, news begins trickling out that a $13 billion deal between HP and Electronic Data Systems.

Shares are halted, speculation begins, a statement from HP confirms the talks, the deal is announced this morning, investors wonder whether IBM  will face competition in its bread-and-butter business, and oh yeah, HP also pre-releases earnings. Well, some of them anyway.

It's those earnings that I want to focus on for a second, because they may get drowned out by the now $13.9 billion merger between HP and EDS announced earlier this morning. And it would be a shame if those earnings indeed get drowned out, and judging by trading in HP shares, they are.

The company, which was supposed to report earnings on Thursday--but decided to do so today since it had to speak to the media anyway about the deal for EDS--handily beat Wall Street expectations, on a per share basis, coming in at 87 cents instead of the 84 cents that analysts were looking for. And not a bad improvement from the 70 cents the company reported in the year-earlier quarter.

HP didn't offer up net income or sales figures, which will now come May 20 instead of May 15 as originally planned.

Despite the holes in the report, analysts are focusing on the company's guidance, which HP raised to a range of $3.30 to $3.34, versus the original estimate of $3.26 to $3.30. The company also raised its forecast for adjusted earnings to $3.54 to $3.58 against the previous $3.50 to $3.54. Analyst consensus was $3.52. And for its third quarter, HP expects 82 or 83 cents on revenue of $27.3 to $27.4 billion, when analysts were at 82 cents on $27.35 billion.

Why the change in earnings release schedule? A source at HP tells me, "When you're in a quiet period, and you're talking about a significant transaction, and you're in front of a bunch of investors, you need to tell what the story is." Not the entire story, but enough that you're being upfront about what's occurring.

There's another side of this as well: While the earnings news will be drowned out to a degree today, HP gets to come back next week for its "official" earnings announcement, which will likely include a pretty blockbuster revenue and net income number, and the company gets to start the news cycle fresh with another round of good news. PR? Meet Finance. Finance? This is PR.

None of today's financial news includes the EDS acquisition, which the company says should be accretive in 2009. But the full-year outlook follows similar good news from Microsoft , Intel , Apple  , Google , and even Cisco -- if you look longer, longer term. The fact is, there has been so much concern about a domestic slowdown in the United States that could eventually spread to regions around the world. And now we have new data, and a new outlook, from the biggest name in tech, showing that there is no slowdown.

HP's play for EDS grabs the headlines today. The bigger story, affirmed again with next week's HP earnings release, is that tech looks good--very good--for the foreseeable future.

And check out my post on why India and IBM are the reasons behind the HP/EDS deal.

Questions?  Comments?