HP on Tuesday easily topped analyst estimates in its first fiscal quarter and raised its guidance for the rest of 2008, giving overwrought technology investors a refreshing bit of good news for a change.

In the quarter ended January 31, 2008, HP earned $2.13 billion, or 80 cents a share, on sales of $28.5 billion. Excluding one-time charges, the company earned 86 cents a share—a considerable upside surprise considering most analysts were expecting it to earn about 81 cents a share in the quarter.

The $28.5 billion in sales marked a 13 percent increase from the year-ago quarter when it pocketed $1.55 billion, or 55 cents a share, on sales of $25.1 billion.

While so many other technology companies have either withheld detailed forecasts for the remainder of 2008 or issued lukewarm-to-chilly guidance, HP offered up targets that are specific and encouraging by any measure.

HP shares were quick to respond to the good news. After closing up a modest 8 cents a share to $43.95, the stock rallied up $2.50, or 6 percent, to $46.46 in after-hours trading.

David Cearley, an analyst at Gartner, said HP's strong quarter and encouraging outlook underscores the importance of aggressive investment in emerging markets outside the U.S.

"We're seeing a trend with these large companies, like HP and IBM, that have significant business outside the U.S. and are experiencing phenomenal growth," he said. "The U.S. market is still very large and a threat of a recession is important, but it doesn't have near the impact on these companies as it would have just a few years ago."

In the first quarter, HP enjoyed an 8 percent improvement in total sales from the Americas region—with about 6 percent growth coming specifically from the U.S.

"The U.S. grew 6 percent and was pretty linear in the quarter," Hurd said, indicating that orders from U.S. customers were fairly consistent through all three months of the company's first fiscal quarter. "The consumer business in the U.S. was not quite as robust as we've seen in the past, but globally it was pretty strong overall."

By region, Europe, the Middle East and Africa accounted for the most revenue at $12.3 billion, up 15 percent from the year-ago quarter. The Americas moved up 8 percent to $11.2 billion while sales into the Asia Pacific region increased 22 percent to more than $4.9 billion.

As for those emerging markets, sales to customers based in Brazil, Russia, India and China (BRIC) surged 35 percent from the year-ago quarter and now represent about 9 percent of the company's total sales.

Sales from its Personal Systems Group (PSG) improved 24 percent to $10.8 billion, with total unit shipments increasing 27 percent. Notebook and desktop PC sales rose 37 percent and 15 percent, respectively.

Imaging and Printing Group (IPG) sales inched up only 4 percent in the quarter to $7.3 billion with commercial hardware sales gaining only 7 percent from the year-ago quarter while consumer printing sales fell 5 percent from the same period last year.

Sales of storage and server products checked in at $4.8 billion in the quarter, up 9 percent from the first quarter of 2007.

"What's going to be really interesting going forward is the extent HP shifts from a primarily a hardware company to a company that has a strong software and services focus," Cearley said. "They still have a long way to go to make that a reality. But the future story with HP will revolve around software and services."

HP, which has made a number of high-profile acquisitions to beef up its software portfolio, recorded more than $666 million in software sales in the first quarter, up 11 percent. The segment provided an operating profit of $51 million, up from $18 million in the year-ago period.

Services sales increased 11 percent to $4.4 billion in the quarter. Outsourcing services (up 15 percent) and consulting and integration services (up 13 percent) accounted for the lion's share of growth in the quarter.

For the second quarter, Hurd told analyst to expect sales between $27.7 billion and $27.9 billion and earnings of between 83 cents and 84 cents a share, up from previous estimates of $27.4 billion and 82 cents a share, respectively.


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