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Friday, November 17, 2006

Hewlett Packard (HPQ)

By William Trent, CFA of Stock Market Beat

Hewlett Packard (HPQ) shares were off slightly after reporting that earnings beat consensus estimates - if you are willing to view their recurrent restructuring charges as non-recurring. While they have had their share of troubles this quarter, you have to hand it to them for reporting at all, the way things are going in tech-land (with everyone either delaying their report or giving partial data while being investigated by the SEC.)

Revenues grew 7% year/year. That is not an exciting number, but at least it is better than some others we have seen.

Inventories grew faster than sales, which management explained on the conference call thusly:
Next, the balance sheet. HP’s inventory came in at $7.8 billion, up $873 million year over year and up $286 million sequentially. Inventory days of supply stands at 38 days, up from 35 days last year and down from 41 days sequentially. The year-over-year increase in inventory reflects volume growth, strategic buys and supply chain changes designed to optimize our cost structure. The sequential increase is in line with normal seasonality.

We’re still a little skeptical, but the explanation is within the bounds of reason. Again, while not a major concern it was nothing to brag about.
Overall, we agree with the after-market response to the report. This was a decent but unspectacular quarter for Hewlett Packard.

The author may hold a position in the securities discussed.

The author's current holdings are as follows: Long: Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion's Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; Ceradyne (CRDN); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Lion's Gate (LGF) call options; Dell (DELL) put options; Ceradyne (CRDN) call options; Plantronics (PLT) put options.

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