April 16, 2008 - Hewlett-Packard Co. (HPQ-NYSE) provides enterprise and consumer customers a full range of high-tech equipment, including personal computers, servers, storage devices, printers, and networking equipment. Its software portfolio includes operating systems, print management tools, and OpenView, a suite that encompasses application, business, network infrastructure, and product lifecycle management. HP also boasts an IT service organization that is among the world's largest.

Sales in 2007 were $104.286 billion, up almost 14% from 2006. Net income was $7.264 billion. That was good for $2.68 a share, up from $2.03 in 2006 or a 32% improvement. This year analsyts predict sales will reach $113.8 billion and earnings per share will be $3.30 a share. Look for $120 billion in sales and $3.75 a share. Clearly this is a big company that is still growing.

One of the reasons: it goes well beyond the U.S. for growth, even beyond the major, developed countries. In the first quarter of this year, fully 69% of revenues came from outside the U.S. While a slowdown in the U.S. will also affect Europe, HP is selling lots of equipment in the emerging markets countries. The dollar's weakness is definitely helping sales as well as profits as currency translation added 5% to the bottom line in the first quarter (ended January).

There's a smorgasbord of tech for sale from HP: personal systems group showed a 24% increase in revenues in the first quarter, compared to the same quarter last year; Enterprise storage and server, software and services sales saw increases of 9%, 11% and 11%; imaging and printing grew by 4% while supplies moved up 6%. Further gains in profits came from cost cutting and better pricing for some components. Margins widened in the quarter.

HP has good diversification from its customer base, roughly divided into thirds. Revenues come from enterprises, small and mid-sized businesses, and consumers. It doesn't sell as much to financial services firms which will most likely inure to its benefit since tech spending in banks, investment banks and thrifts will no doubt be curtailed due to major losses in the industry.

To enhance profitability, HP is cost cutting with consolidation of data centers, better sourcing of goods and elimination of some corporate overhead. These should allow the company to grow earnings by 16.6% a year, on average, over the next 5 year while sales ramp by 11.5% in the same time period.

The one red flag that waves over HP is the U.S. economy, and its ripple effect on other nations. It will slow growth in Europe, China, any of our major trading partners since we won't buy as much of their goods and services. If the domestic economy has bottomed or close to it, HP should enjoy good, profitable growth for some time. If it slows much further, all of these rosy numbers will have to be trimmed.

- Company Web site: www.hp.com

- Ted Allrich