HP Reports Third Quarter 2007 Results.

* Net revenue of $25.4 billion, up $3.5 billion year over year, or 16%

* GAAP operating profit of $2.1 billion; $0.66 earnings per share, up from $0.48 in the prior-year period

* Non-GAAP operating profit of $2.3 billion; $0.71 earnings per share, up from $0.52 in the prior-year period

PALO ALTO, Calif -- HP (NYSE:HPQ) today announced financial results for its third fiscal quarter ended July 31, 2007, with net revenue of $25.4 billion, representing growth of 16% year over year, or 12% when adjusted for the effects of currency.

GAAP operating profit was $2.1 billion and GAAP diluted earnings per share (EPS) was $0.66, up from $0.48 in the prior-year period. Non-GAAP operating profit was $2.3 billion, with non-GAAP diluted EPS of $0.71 up from $0.52 in the prior-year period. Non-GAAP financial information excludes $134 million of adjustments on an after-tax basis, or $0.05 per diluted share, related primarily to amortization of purchased intangibles. GAAP and non-GAAP financial information include all stock-based compensation expense in both current and prior-year periods.

"HP's latest results demonstrate continued strength across each of our key businesses and geographies with our best revenue growth since 2000," said Mark Hurd, HP chairman and chief executive officer. "We are executing increasingly well in creating demand for our innovative products and services, and we are continuing to become a more efficient organization."

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Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below.

During the quarter, on a year-over-year basis, revenue in the Americas grew 14% to $11.1 billion, revenue in Europe, the Middle East and Africa grew 16% to $9.7 billion, and revenue in Asia Pacific grew 22% to $4.6 billion. When adjusted for the effects of currency, revenue in the Americas grew 13%, revenue in Europe, the Middle East and Africa grew 9%, and revenue in Asia Pacific grew 18%. Revenue from outside of the United States was 65%, with revenue in the BRIC countries (Brazil, Russia, India and China) growing 35% over the prior year in the third quarter and now accounting for more than 8% of revenue.

Personal Systems Group

Personal Systems Group (PSG) revenue grew 29% year over year to $8.9 billion, with unit shipments up 33% on a year-over-year basis. These results bring PSG's year-to-date revenue growth to nearly $5 billion. Notebook revenue grew 54% over the prior-year period, while desktop revenue grew 12%. Commercial client revenue grew 19% year-over-year, while Consumer client revenue increased 46%. Operating profit was $519 million, or 5.8% of revenue, up from $275 million, or 4.0% of revenue, in the prior-year period.

Imaging and Printing Group

Imaging and Printing Group (IPG) revenue grew 8% year over year to $6.8 billion. On a year-over-year basis, supplies revenue grew 9%, commercial hardware revenue grew 6% and consumer hardware revenue grew 10%. Printer unit shipments increased 10% year over year, with consumer printer hardware units up 8% and commercial printer hardware units up 17%. Momentum in key growth initiatives continued, with printer-based multi-function devices up 76%. Operating profit was $981 million, or 14.5% of revenue, up from $884 million, or 14.2% of revenue, in the prior-year period.

Enterprise Storage and Servers

Enterprise Storage and Servers (ESS) reported revenue of $4.5 billion, up 10% over the prior-year period. On a year-over-year basis, industry-standard server revenue increased 16%, with x86 blade revenue up 81%. Storage revenue grew 6%, with revenue growth of 7% in external disk storage, including 14% in the midrange EVA line, and partially offset by a decline in the tape business. Business critical systems revenue declined 3%, with Integrity systems growth of 71% offset by declines in PA-RISC and Alpha. Operating profit was $464 million, or 10.2% of revenue, up from $296 million, or 7.2% of revenue, in the prior-year period.

HP Services

HP Services (HPS) revenue increased 8% year over year to $4.2 billion. Revenue in Technology Services grew 5% over the prior-year period, while Consulting and Integration revenue rose 11%, and Outsourcing Services revenue rose 11%. Operating profit was $430 million, or 10.3% of revenue, up from $364 million, or 9.4% of revenue, in the prior-year period.

HP Software

HP Software revenue grew 74% over the prior-year period to $554 million, led by strong growth from the businesses acquired in HP's purchase of Mercury Interactive. On a year-over-year basis, HP OpenView grew 14% excluding Mercury. Operating profit was $81 million, or 14.6% of revenue, up from $13 million, or 4.1% of revenue, in the prior-year period.

Financial Services

HP Financial Services (HPFS) reported revenue of $582 million, an increase of 12% year over year. Financing volume and net portfolio assets increased 7% and 8%, respectively, over the prior-year period. Operating margin was 6.7% of revenue, comparable to the same period last year.

Asset management

HP generated $1.9 billion in cash flow from operations. Inventory ended the quarter at $8.0 billion, up $728 million sequentially and up $542 million year over year. Accounts receivable increased $268 million sequentially and increased $2.2 billion over the prior-year period to $11.8 billion. Accounts payable increased $168 million sequentially and $978 million over the prior-year period to $11.7 billion. HP's dividend payment of $0.08 per share in the second quarter resulted in cash usage of $209 million. HP utilized $2.5 billion of cash during the third quarter to repurchase approximately 55 million shares of common stock from the open market. HP exited the quarter with $12.5 billion in gross cash, which includes cash and cash equivalents of $12.5 billion, short-term investments of $40 million, and certain long-term investments of $23 million.

Outlook

HP estimates Q4 FY07 revenue will be approximately $27.0 billion to $27.2 billion.

Fourth quarter FY07 GAAP diluted EPS is expected to be in the range of $0.75 to $0.76, and non-GAAP diluted EPS is expected to be in the range of $0.80 to $0.81. Non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.05 per share, related primarily to the amortization of purchased intangible assets.

HP estimates FY07 revenue will be approximately $103.0 billion to $103.2 billion.

FY07 GAAP diluted EPS is expected to be in the range of $2.61 to $2.62, and FY07 non-GAAP diluted EPS is expected to be in the range of $2.86 to $2.87. FY07 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.25 per share, related primarily to the amortization of purchased intangible assets, in-process research and development charges, restructuring charges and pension curtailment gains.

More information on HP's quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations website at www.hp.com/investor/home.

HP's Q3 FY07 earnings conference call is accessible via an audio webcast at www.hp.com/investor/q32007webcast.

About HP

HP focuses on simplifying technology experiences for all of its customers - from individual consumers to the largest businesses. With a portfolio that spans printing, personal computing, software, services and IT infrastructure, HP is among the world's largest IT companies, with revenue totaling $100.5 billion for the four fiscal quarters ended July 31, 2007. More information about HP is available at www.hp.com.

Use of non-GAAP financial information

To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its business, the substance behind HP management's decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which HP management compensates for those limitations, and the substantive reasons why HP management believes that these non-GAAP measures provide useful information to investors is included under "Use of Non-GAAP Financial Measures" after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for operating profit, operating margin, net earnings, diluted earnings per share, or cash and cash equivalents prepared in accordance with GAAP.

Forward-looking statements

This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, earnings, tax provisions, cash flows, benefit obligations, share repurchases or other financial items; any statements of the plans, strategies, and objectives of management for future operations, including execution of cost reduction programs and restructuring plans; any statements concerning the expected development, performance or market share relating to products or services; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include macroeconomic and geopolitical trends and events; execution and performance of contracts by suppliers, customers and partners; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions related to pension and other post-retirement costs; expectations and assumptions relating to the execution and timing of cost reduction programs and restructuring plans; the resolution of pending investigations, claims and disputes; and other risks that are described in HP's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2007 and HP's other filings with the Securities and Exchange Commission, including HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2006. As in prior quarters, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2007. In particular, determining HP's actual tax balances and provisions as of July 31, 2007 and for the fiscal quarter then ended requires extensive internal and external review of tax data (including consolidating and reviewing the tax provisions of numerous domestic and foreign entities), which is being completed in the ordinary course of preparing HP's Form 10-Q. HP assumes no obligation and does not intend to update these forward-looking statements.

Note to editors: More news from HP, including links to RSS feeds, is available at www.hp.com/hpinfo/newsroom/.

(c) 2007 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.

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