The New HP Way!  Surprise, Surprise!


Here we are on HP's earnings day, and considering last week's surprising, and mistaken pre-announcement by an employee who sent the company's "crown jewels" out a week early, the company manages to surprise again. And once again, it's the kind of surprise shareholders love.

The company beats on both the top on bottom line: 70 cents a share in EPS, instead of the 68 cents the Street was expecting, which works out to $1.9 billion in non-GAAP profits. And $25.5 billion in revenue instead of the $25.23 billion expected.

And better still, it's where all this strength is coming from that's knocking the socks off analysts, and precisely the kind of thing rival Dell shareholders loathe to hear -- HP's going gangbusters in its Personal Systems Group (PSG), which saw sales jump a staggering 24%, with shipments up 30%: $8.7 billion in revenue; and operating profits soared to $417 million, up from last year's second-quarter operating profits in the unit of $248 million.

HP held a conference call for media just after the numbers were released, and CEO Mark Hurd beamed with pride. He characterized the PSG's performance as an "outstanding quarter," and then telling me that "HP is performing well. Don't let me confuse you: HP is still transforming and not 'transformed.' We're not close to being done."

I got the chance to ask a few questions, most notably how HP can manage to keep stealing marketshare from Dell even as that company continues to stumble. You probably saw that Dell is now facing a New York State Attorney General's lawsuit over customer service fraud and other allegations.

"We have received an unprecedented number of complaints against Dell , approximately 700, and they keep coming," said New York Attorney General Andrew Cuomo in a press conference announcing the action.

Dell continues to lose momentum in the PC market. The PC market isn't growing nearly as robustly as it was 18 months ago. And yet, HP is showing surprising strength there.

"Innovation and support are really the key. (Market share) really is the result, not the objective," Hurd told me, simultaneously tipping HP's hat while knocking his rival since "innovation" and "support" are the two key issues plaguing Dell, among so many others.

"It's difficult to discern how quickly and whether the company can turn around," says Ben Reitzes, the PC analyst at UBS Securities. "When it's all said and done, HP is cheaper and growing faster. So we just say 'buy HP.' Also another share gainer is Apple. The are gaining share and growing so much faster."

I also asked Hurd about last week's embarrassing leak of the company's financials. Hurd told me today it was an "inadvertent mistake" by a single employee who quickly reported the sticky transgression.

"We sure wish that hadn't happened," said a contrite, yet characteristically folksy Hurd. "We found out late in the evening."

He added that the company immediately took "appropriate action," and then proceeded to turn this negative into a positive. Hurd went on to say that, "While it's unfortunate, it's a pretty good statement for HP that the problem was reported immediately, accurately and that essentially no harm was done."

It probably helped matters that the leak detailed the company was actually raising its guidance. It's amazing how understanding the Street can be when the news is good! For the first time as well, HP now projects that it will become Silicon Valley's first $100 billion company, anticipating revenue between $100.5 billion and $100.9 billion, taking the mantle away from IBM as the world's largest technology company. HP also anticipating an EPS range of $2.51 to $2.53 a share.

This was a tremendous report and just how much so can be tallied in HP's share reaction. HP's shares have more than doubled this past year, hitting $45 a share this past week, and now at a seven-year high. And that strong rally continued after these numbers were released, even though investors had much of the key information a week ago. HP now boasting a market cap north of $120 billion.

One question for you: Carly who?

Questions? Comments?