Analyst Conference Summary

conference date: November 19, 2007 @ 2:00 PM Pacific Time
for quarter ending: October 31, 2007 (4th quarter fiscal 2007)

Forward-looking statements

Overview: Continued solid earnings growth. Moderate guidance.

Basic data:

Revenues were $28.3 billion, up 11% sequentially from $25.4 billion and up 15% from $24.6 billion year-earlier.

Net income was $2.2 billion, up 22% sequentially from $1.8 billion and up 28% from $1.7 billion year-earlier.

EPS (earnings per share) was $0.81, up 23% sequentially from $0.66 and up 35% from $0.60 year-earlier.

Guidance:

Q1 fiscal 2008 revenue will be approximately $27.4 to $27.5 billion. GAAP EPS expected to be $0.75.

Full fiscal 2008 EPS expected between $3.12 to $3.17.

Conference Highlights:

Net revenue was up 11%, rather than the 15% stated, if adjusted for the effects of currency.

GAAP operating profit was $2.6 billion; non-GAAP was $2.8 billion.

Non-GAAP EPS was $0.86. The $0.05 difference to GAAP excludes $132 million for amortization of purchased intangibles.

Performance was strong across lines and the software segment improved sharply. Mercury and other acquisition integrations have gone well. HP is now 6th largest software company in the world. Effectively balancing growth and cost reduction.

By region, Americas revenue was $11.9 billion, up 10% y/y. EMEA was $11.6 billion, up 19%. Asia Pacific was $4.8 billion, up 20%.

PSG (Personal Systems Group) revenue grew 30% y/y to $10.1 billion. Notebook revenue grew 49% y/y; desktop revenue 15%. Commercial client revenue rose 24% y/y; consumer 40%. Growth in China, our 3rd largest market for PCs, was 100% y/y.

IPG (Imaging and Printing Group) revenue was $7.6 billion, up 4% y/y. This is slower than usual because of caution in pricing of appliance printers. Operating profits solid for this division. But making changes in camera strategy that will result in camera revenue decline.

ESS (Enterprise Storage and Servers) revenue was $5.2 billion, up 10% y/y. x86 blade revenue was up 78%; storage revenue 7%; critical systems 5%. Room for improvement in storage.

HPS (HP Services) revenue was $4.4 billion, up 7% y/y.

HP Software revenue was $698 million, a doubling of revenue.

Operating margin was 9.3% GAAP, 9.9% non-GAAP.

Cash flow from operations was $3.6 billion. Inventory ended at $8.0 billion, down 4 days from year-earlier. $206 million was used for dividend payments and $2.0 billion was used to repurchase shares. The quarter ended with $11.6 billion in cash and equivalents.

$8 billion more has been authorized for stock repurchases.

Does not believe investor expectations should be that our share of consumer demand will continue to grow twice as fast as the market.

Q&A:

Printer growth slowing? We are comfortable with mid to high single digit supplies growth and mid single digit unit growth. We are being picky about the categories we are competing in due to occasional disconnect between unit sales and supply sales.

Component pricing? Better than we predicted, but expect to do the usual seasonal tightening.

Business critical servers? Good results were partly from working on getting more ISVs on line. No particular large deals with Itanium, but this is a great opportunity for us.

Higher growth rate in guidance despite economic uncertaincy? Part of that is due to currency changes. We have been driving growth with very little increase in SG&A expense.

Economics and exposure to financials segment? 67% of our revenue came from outside the U.S. We are doing well and are only trying to predict our own numbers. We have very little exposure to financial services, but the clients we do have did not show weakness.

Is your guidance conservative? The deceleration is mainly due to the PSG segment. We don't want a cost structure ahead of where are revenue is going to come in. We saw some strength in enterprise in U.S. Overall 7% growth in U.S. is not a bad quarter for us.

Currency? Don't bake in the currency changes into your model. We are being disciplined in our currency expectations.

Consumer demand? On the whole, globally, it has been steady. But it has varied by region and segment, for instance the strong notebook growth.

Emerging market demand factors? Not driven by currency issues. Driven by explosion of content.

Storage acquisitions going forward? Possible, but we are feeling good about our storage segment.

OpenIcon Analyst Conference Summaries Main Page

HP Investor Relations page

Search

More Analyst Conference Pages: