Fiorina: HP's Direct-Sales Effort Gathering Momentum

Hewlett Packard Chairman and CEO Carly Fiorina Tuesday told Wall Street analysts that the company's direct sales effort is continuing to gather momentum as HP moves to keep the pressure on Dell.

"It would be inaccurate to describe our direct push as plateaued," said Fiorina. "We have a lot more potential in terms of using that direct engine frankly not just for PCs but for other products as well. I would describe our direct push as continuing to gather momentum."

"We think it is in our interest to continue to put intense pressure on Dell's core business which we are clearly doing for the third quarter in a row," said Fiorina.

Fiorina's comments came after HP Tuesday posted earnings in line with expectations of 34 cents per share on a 12 percent increase in sales to $20.1 billion for its second fiscal quarter ended April 30. HP also revised its second half fiscal 2004 sales estimates up slightly to a range of $39.7 billion to $40.7 billion. HP shares were up five percent in after hours trading to $20.75.

"I wouldn't characterize it as a quarter of big surprises," said Fiorina. "I would characterize it as a quarter of good solid momentum and growth around the world."HP's Personal Systems Group reported an operating profit of $45 million on a 17 percent increase in sales to $6.0 billion. The $45 million operating profit is up from $23 million in the year ago quarter. HP said the results marked the third consecutive quarter that year over year revenue growth surpassed Dell.

HP Chief Financial Officer Bob Wayman said that HP is seeing increases in average selling prices in PCs in stark contrast to rival Dell's average selling prices. Wayman said HP is even seeing the average selling price trend in the US with HP doing a good job with higher attach rates with higher priced products such as flat panel monitors.

Wayman said HP is aiming to take another point out of its personal systems group operating expenses line in order to match Dell. Besides the additional direct sales leverage, HP is also moving to take more costs out of its PC supply chain. "We are undertaking actions as we speak that will get us moving in that direction," Wayman said.

Fiorina said HP's PC sales were up up 14 percent with units up 13 percent, while in notebooks sales increased 26 percent while units increased 19 percent.

Fiorina said that HP's Printing and Imaging unit continues to gain share with record sales despite Dell's printer offensive and what she called Dell's printer rhetoric. "We feel pretty good about the competitive dynamics," she said.As for HP's services acquisition appetite, Fiorina once again ruled out a blockbuster services deal. She said HP's services growth will come from organic growth and smaller acquisitions. "We continue to believe that most of the very large players out there have structural issues that we don't want to take on as the services market continues to transform," she said. "However, there are a lot of smaller local or regional players and in many cases an internal IT shop within a customer's organization that also does work for that customers' partners or suppliers can be a possible small acquisition as well."

Fiorina also reiterated HP's belief that there will be only one to two percentage points increase in US enterprise IT budgets this year.

Wayman noted that HP's third fiscal quarter is the company's seasonally weakest quarter and advised analysts to build some modest gross profit margin deterioration into their financial models. Furthermore, he said, HP's board is evaluating how to take advantage of the company's $15 billion cash position in terms of possible share repurchase or acquisitions.