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HP: IT Spending Bounce Back in 2010

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SAN FRANCISCO (Reuters) – Hewlett-Packard Co predicted that overall IT spending would bounce back next year, but set a fiscal 2010 revenue forecast that came in just below Wall Street’s expectations.

The IT industry will return to growth in 2010, and HP should outpace that growth, Chief Executive Mark Hurd told an audience at the company’s yearly analyst meeting on Thursday.

Shares of HP, a bellwether for corporate spending on hardware because of its diverse, sprawling businesses, slid 1.9 percent to $46.00 after hours, from a regular close of $46.87.

“I know we’ll get questions about how fast the market’s going to grow,” Hurd said. “Whatever that answer is that’s handed to us in 2010, we will grow faster.”

“We expect the IT industry to return to growth in 2010 and believe that HP will outpace the market.”

Many technology companies are looking forward to a corporate hardware refresh cycle that is expected to begin next year, as large companies move to replace aging machines with the latest equipment.

While HP assumes there will indeed be a resumption in spending, “we haven’t planned for it to be really robust and we’re waiting to see what really happens,” Chief Financial Officer Cathie Lesjak said on a call with reporters.

She added that the company typically plans conservatively.

HP forecast earnings, excluding items, of $4.20-$4.30 per share on revenue of $117 billion to $118 billion in fiscal 2010. That implies an operating margin of 11.4-11.6 percent.

Analysts had expected a $4.23 profit on $118.1 billion of revenue, according to Reuters Estimates.

For fiscal 2010, HP forecast revenue growth in its services division of 2-4 percent, and growth of 3-5 percent in its PC business, which accounts for a fifth of overall turnover.

It forecast zero to 2 percent growth in its printing groups, and a 2-4 percent rise in storage and servers.


HP’s view on business spending echoes growing positive sentiment among industry executives. On Thursday, McAfee Inc CEO Dave Dewalt told Reuters he was seeing benefits from a recovery in technology spending by businesses.

Others remain cautious. Blackberry-maker Research in Motion gave an outlook that fell short of forecasts heading into the holiday season, amid fears that corporations might choose to delay upgrading their employees’ devices.

HP, the world’s largest maker of personal computers, is also a leading player across the IT sector in everything from services to servers and printers. Its comments are closely watched as barometers of business spending and the overall health of the technology sector.

HP’s diversified business model and reliable revenue streams have helped it weather an economic downturn that has crimped technology spending from businesses and consumers. It has gained share in both PCs and servers.

The company has been zealously managing costs during the slowdown, while managing expectations about a turnaround in IT spending.

HP last year acquired EDS in a blockbuster $13 billion deal that transformed the company into the No. 2 provider of IT services, behind only IBM. HP said it has wrung out $900 million in savings from the integration so far, which would rise to $3 billion by the time the process is completed.

Frost & Sullivan analyst Ronald Gruia praised the company’s constant attention to expenses and said it stands to benefit from an expected rebound in tech hardware.

“The PC rebound is primarily going to be driven by strong retail notebooks, which is HP’s sweet spot, and that bodes really well for them,” he said. “Their services margin will continue to improve and I think they’re managing the EDS integration well.”

Copyright 2009 Reuters. Click for restrictions.

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