Hewlett-Packard first quarter profit jumps

HP controls costs by withdrawing pension plan for long-time HP employees

Hewlett-Packard tops Wall Street's revenue and earnings expectations in the first quarter of its 2007 fiscal year.

While happy with what its CEO calls a "solid quarter," HP says it will seek to further control costs by putting an end to its defined benefit pension plan for long-time HP employees and is offering an early retirement package. Sixty HP employees in New Zealand have lodged a personal grievance claim against HP after the company announced it would withdraw the superannuation fund.

HP posted net income of US$1.5 billion (NZ$2.14 billion), or US$0.55 a share, in the quarter ended January 31, 2007, compared to US$1.2 billion, or US$0.42 a share in the year ago quarter, says the Palo Alto, California company.

Excluding US$279 million in adjustments on an after-tax basis, net income for HP (NYSE:HPQ) was US$1.8 billion (NZ$2.57 billion), or US$0.65 a share, exceeding the consensus forecast for US$0.62 per share from analysts polled by Thomson Financial.

HP describes the expenses as related primarily to the amortisation of purchased intangibles and in process research and development charges related to acquisitions. It also cites stock-based compensation expense in both current and prior years.

Revenue came in at US$25.1 billion, up 11% from last year's first quarter and above the US$24.27 billion analyst forecast.

Growth came from HP's personal systems group, which is desktop and laptop computers for consumers, with a 17% year-over-year revenue growth, and from imaging and printing, with 7% revenue growth.

HP topped rival Dell as the leading seller of personal computers in 2006, according to IDC. At financially troubled Dell, former CEO and chairman Michael Dell returned to the CEO office, following the ouster of Kevin Rollins last month.

While chairman and CEO Mark Hurd says the quarter was strong overall, he is disappointed with the company's enterprise storage and server products unit.

Revenue in that division grew 5% to US$4.5 billion and greater efficiency meant the company made more profit from the business. However, storage revenue alone grew only 3%, says Hurd. Although it's midrange EVA line of storage products sold well, sales of its tape storage products and high-end storage devices were weak.

"We have got to drive top line growth," he says. While HP has been hiring new sales people, it also needs to develop more sales prospects. "We just don't cover enough accounts," says Hurd.

Meanwhile, an austerity program at the company continues.

HP took further steps to reduce overhead by announcing the end of the company's pension plan as of January 1, 2008, relying solely on a defined contribution plan as the company-sponsored employee retirement plan. In a defined contribution plan, such as a 401(k), an employer contributes a certain amount to a fund but doesn't guarantee a specific retirement benefit.

HP anticipates a "pension curtailment benefit" of US$500 million from no longer funding pensions, but the savings will be largely offset by an early retirement incentive it is offering to employees, says Cathie Lesjak, HP's chief financial officer.

Lesjak says HP anticipates about 3,000 employees will take the early retirement offer, which is good until May 31, and that most of the vacancies will be refilled.

Additional reporting by Ulrika Hedquist.

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Tags retirement packageHPSuperannuationHewlett-Packard

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