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Contributors: Douglas McIntyre Jon C. Ogg

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Wednesday, August 16, 2006

H-P Delivers; Shares Up

Mark Hurd is helping Hewlett-Packard (HPQ) deliver. We noted that the company had the opportunity to try to hide behind acquisitions and restructurings for being vague on forward guidance, but so far it doesn't look like the company is playing it safe or being conservative at all. The company beat estimates and raised guidance, so they are being somewhat rewarded in after-hours trading.

Its shares closed on what looks like a new near-term high of $34.43, and are trading up at $35.90. We noted that if the beat and can show great forecasts that they would likely enter into a new higher trading
range, and unless the market goes to hell in a handbasket or unless they are hiding bad news that appears to be happening.
The group posted net EPS at $0.52 on $21.9 Billion in revenues, compared to estimates of $0.47 and $21.8 Billion.

Interestingly enough, printing and imaging revenues were $6.2 Billion, up 5% year over year with operating profit up to $884 million. Personal Systems (computers) rose 8% to $6.9 Billion with operating profit up at $275 million. Storage and servers revenue was up 3% $4.1 Billion, with with operating profits at $296 million. HP services revenues were only up 1% to $3.9 Billion, with operating profits of $364 million. Software revenue was only $318 million, with profits coming in above last year's loss at $13 million; and that number will change drastically after the Mercury Interactive acquisition in Q4. Its financial services unit posted revenues of $519 million and profits of $35 million.

We have yet another quarter before Blade servers may start really adding to profits, but printing and imaging operating income is still too close to 50% of total profits. We aren't trying to be a naysayer here, but the street definitely wants that to come down through time. The company is going to buy back about $6 Billion in stock.

HP estimates Q4 FY06 revenue will be approximately $24.1 billion.
Fourth quarter GAAP diluted EPS is expected to be in the range of $0.57 to $0.59, and non-GAAP diluted EPS is expected to be in the range of $0.61 to $0.63.

It looks like Dell's issues may be isolated, so we'll see. DELL shares are only up $0.07 higher than the +$0.65 gain of the day to $22.73. IBM (IBM) closed up 2.6% at $79.09, and its shares are not indicated any differently so far. It looks like H-P is being rewarded so far all on its own.

Jon C. Ogg
August 16, 2006

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