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HP raises hopes, profits and revenues

Hewlett-Packard intended to release its full Q2 2008 fiscal report yesterday, but a little event like spending $13.9 billion on EDS has pushed the full report back to next week. A full quarterly report is always enlightening, a bit like Kremlinology of the 1970s — watching which business sectors stand shorter or taller on the company's dais. The health of HP's Services business is one of the leaders we watch, since Services is the sector where HP still collects 3000 customer revenues. HP's Services growth was flat during the last quarterly report, which might explain why the HP board swallowed the EDS deal just now.

EDS wasn't generating much of a profit when HP announced its intention to buy the company, but that didn't push HP's stock down for very long after the announcement. By Thursday HP shares had recovered about half of what they lost on the EDS news — a loss of more market cap than EDS is worth altogether.

But HP reported good preliminary news of its finances that may have helped allay any uncertainty about EDS. The preliminary results reported revenue of $28.3 billion compared with $25.5 billion one year ago. The vendor also raised its "guidance" (estimates) for business in the rest of fiscal 2008.

In the second quarter, preliminary GAAP [Generally Accepted Accounting Practices] diluted earnings per share (EPS) were $0.80 and non-GAAP diluted EPS were $0.87, compared with second quarter fiscal 2007 GAAP diluted EPS [Earnings Per Share] of $0.65 and non-GAAP diluted EPS of $0.70. Non-GAAP diluted EPS estimates exclude after-tax costs related primarily to the amortization of purchased intangible assets of approximately $0.07 per share and $0.05 per share in the second quarter of fiscal 2008 and fiscal 2007, respectively.

HP felt compelled to add in its preliminary notice that business was good across the board. "The second quarter results were highlighted by solid performance across HP's business segments and strong cash flow from operations," the company said on the same day of the EDS announcement.

HP estimates full-year FY08 revenue will be approximately $114.2 billion to $114.4 billion, up from its previous estimate of $113.5 billion to $114 billion. FY08 GAAP diluted EPS is expected to be in the range of $3.30 to $3.34, up from its previous estimate of $3.26 to $3.30

One of the tenets of the HP Way has always been "maintain profits," so the motivation for HP's product and service decisions can be read in a corporate balance sheet and the PowerPoint presentations that accompany the news. On May 20 at 5 PM EDT, the company will present the full picture. An audio Webcast of the conference call will be available at HP usually releases a PowerPoint slide deck (in PDF format) at its financials Web site at the same time.