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Hewlett-Packard Forecasts IT Industry Rebound

Posted on: Friday, 25 September 2009, 13:02 CDT

Hewlett-Packard Co Chief Executive Mark Hurd told an audience at the company's yearly analyst meeting on Thursday that the IT industry will return to growth in 2010, and HP should outpace that growth, Reuters reported.

HP shares slid 1.9 percent to $46.00 after hours, from a regular close of $46.87.

Hurd said he was expecting questions about how fast the market's going to grow, and that whatever the answer is that's handed to them in 2010, they expect to grow faster.

"We expect the IT industry to return to growth in 2010 and believe that HP will outpace the market," he added.

As large companies begin replacing aging machines with the latest equipment, many technology companies are looking forward to a corporate hardware refresh cycle that is expected to begin next year.

Chief Financial Officer Cathie Lesjak said that while HP assumes there will indeed be a resumption in spending, they haven't planned for it to be really robust and they're waiting to see what really happens.

HP typically plans conservatively, she added.

The company’s forecast earnings, excluding items, of $4.20-$4.30 per share on revenue of $117 billion to $118 billion in fiscal 2010, which implies an 11.4-11.6 percent operating margin.

However, Reuters Estimates analysts had expected a $4.23 profit on $118.1 billion of revenue.

HP forecast revenue growth in its services division of 2-4 percent for fiscal 2010, and growth of 3-5 percent in its PC business, which accounts for a fifth of overall turnover.

It also forecast zero to 2 percent growth in its printing groups, and a 2-4 percent rise in storage and servers.

McAfee Inc CEO Dave Dewalt told Reuters on Thursday he was seeing benefits from a recovery in technology spending by businesses.

But others, like Blackberry-maker Research in Motion, gave an outlook that fell short of forecasts heading into the holiday season, amid fears that corporations might choose to delay upgrading their employees' devices.

HP is also a leading player across the IT sector in everything from services to servers and printers. Its comments are closely watched as barometers of business spending and the overall health of the technology sector.

HP has been able to weather an economic downturn that has crimped technology spending from businesses and consumers due to its diversified business model and reliable revenue streams. The company has gained share in both PCs and servers.

HP has also been zealously managing costs during the slowdown, while managing expectations about a turnaround in IT spending.

Last year, the company acquired EDS in a $13 billion deal that transformed the company into the No. 2 provider of IT services, behind only IBM.

So far, it has wrung out $900 million in savings from the integration, which would rise to $3 billion by the time the process is completed.

HP’s constant attention to expenses received praise from Frost & Sullivan analyst Ronald Gruia.  He said the company stands to benefit from an expected rebound in tech hardware.

He suggested strong retail notebooks would primarily drive the PC rebound, which is HP's sweet spot.

"Their services margin will continue to improve and I think they're managing the EDS integration well," said Gruia.

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Source: RedOrbit Staff & Wire Reports

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