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HP Reports Third Quarter 2008 Results

-- Third quarter net revenue up 10%, or $2.7 billion, from a year earlier to $28.0 billion

-- Third quarter GAAP operating profit up 20% to $2.5 billion; $0.80 earnings per share, up from $0.66 a year earlier

-- Third quarter non-GAAP operating profit up 20% to $2.7 billion; $0.86 earnings per share, up from $0.71 a year earlier

-- Strong third quarter cash flow from operations of $3.4 billion

PALO ALTO, Calif.--(BUSINESS WIRE)--Aug. 19, 2008--HP (NYSE:HPQ) today announced financial results for its third fiscal quarter ended July 31, 2008, with net revenue of $28.0 billion, up 10% from a year earlier and up 5% when adjusted for the effects of currency.

In the third quarter, GAAP operating profit was $2.5 billion and GAAP diluted earnings per share (EPS) was $0.80, up from $0.66 in the prior-year period. Non-GAAP operating profit was $2.7 billion, with non-GAAP diluted EPS of $0.86, up from $0.71 in the prior-year period. Non-GAAP financial information excludes $161 million of adjustments on an after-tax basis, or $0.06 per diluted share, related primarily to amortization of purchased intangibles.

"By accelerating our enterprise growth and executing well across the portfolio, HP delivered a strong third quarter performance," said Mark Hurd, HP chairman and chief executive officer. "Our global position, broad product and services offerings and incremental cost saving opportunities make us confident that we'll continue to meaningfully expand earnings."


                               ------------- ------------ ------------
                                  Q3 FY08      Q3 FY07        Y/Y
------------------------------ ------------- ------------ ------------
Net revenue ($B)               $       28.0  $      25.4           10%
------------------------------ ------------- ------------ ------------
GAAP operating margin                   9.0%         8.3%      0.7 pts
------------------------------ ------------- ------------ ------------
GAAP net earnings ($B)         $        2.0  $       1.8           14%
------------------------------ ------------- ------------ ------------
GAAP diluted EPS               $       0.80  $      0.66           21%
------------------------------ ------------- ------------ ------------
Non-GAAP operating margin               9.8%         9.0%      0.8 pts
------------------------------ ------------- ------------ ------------
Non-GAAP net earnings ($B)     $        2.2  $       1.9           14%
------------------------------ ------------- ------------ ------------
Non-GAAP diluted EPS           $       0.86  $      0.71           21%
------------------------------ ------------- ------------ ------------

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

Revenue in the Americas grew 4% on a year-over-year basis to $11.6 billion. Revenue grew 16% in Europe, the Middle East and Africa to $11.2 billion. Revenue grew 14% in Asia Pacific to $5.2 billion. When adjusted for the effects of currency, revenue in the Americas grew 3%, revenue in Europe, the Middle East and Africa grew 5%, and revenue in Asia Pacific grew 8%. Revenue from outside of the United States in the third quarter was 68% of the total, with revenue in the BRIC countries (Brazil, Russia, India and China) growing 24% over the prior-year period and accounting for 10% of total revenue.

Personal Systems Group

Personal Systems Group (PSG) revenue grew 15% year over year to $10.3 billion, with unit shipments up 20% on a year-over-year basis. Notebook revenue for the quarter grew 26% over the prior-year period, while Desktop revenue increased 6%. Commercial client revenue grew 15% year over year, while Consumer client revenue increased 17%. Operating profit was $587 million, or 5.7% of revenue, up from $519 million, or 5.8% of revenue, in the prior-year period.

Imaging and Printing Group

Imaging and Printing Group (IPG) revenue grew 3% year over year to $7.0 billion. On a year-over-year basis, supplies revenue grew 11%, Commercial hardware revenue declined 5% and Consumer hardware revenue declined 14%. Printer unit shipments declined 2% year over year, with Consumer printer hardware units flat and Commercial printer hardware units down 9%. Operating profit was $1.0 billion, or 15.0% of revenue, versus $981 million, or 14.5% of revenue, in the prior-year period.

Enterprise Storage and Servers

Enterprise Storage and Servers (ESS) reported revenue of $4.7 billion, up 5% over the prior-year period fueled by ESS blades, which grew 66%, and Storage, which grew 16%. Storage revenue growth was fueled by the midrange EVA line and the low-end MSA line, which each grew 19%. On a year-over-year basis, Industry Standard Server revenue grew 2%. Business Critical Systems revenue increased 2%. Operating profit was $544 million, or 11.5% of revenue, up from $507 million, or 11.2% of revenue, in the prior-year period.

HP Services

HP Services (HPS) revenue increased 14% year over year to $4.8 billion. Revenue in Technology Services grew 13% with Consulting and Integration and Outsourcing Services up 13% and 18%, respectively, compared with the prior-year period. Operating profit was $574 million, or 12.1% of revenue, up from $417 million, or 10.0% of revenue, in the prior-year period.

HP Software

HP Software revenue grew 29% compared with the prior-year period to $781 million, led by 32% growth in the Business Technology Optimization portfolio. Operating profit was $122 million, or 15.6% of revenue, up from $51 million, or 8.4% of revenue, in the prior-year period.

Financial Services

HP Financial Services (HPFS) reported revenue of $680 million, an increase of 17% year over year. Financing volume and net portfolio assets increased 15% and 13%, respectively, over the prior-year period. Operating margin was 7.5% of revenue, up from 6.7% in the comparable period last year.

Asset management

HP generated $3.4 billion in cash flow from operations for the quarter. Inventory ended the quarter at $8.2 billion, down 3 days over the prior year. Accounts receivable of $13.8 billion was up 2 days over the prior-year period. Accounts payable ended the quarter at $14 billion up 5 days from the prior-year period. HP's dividend payment of $0.08 per share in the third quarter resulted in cash usage of $197 million. HP utilized $1.6 billion of cash during the third quarter to repurchase approximately 34 million shares of common stock from the open market. HP exited the quarter with $14.9 billion in gross cash, which includes cash and cash equivalents of $14.8 billion, short-term investments of $64 million, and certain long-term investments of $101 million.

Outlook

HP estimates fourth quarter FY08 revenue will be approximately $30.2 billion to $30.3 billion.

Fourth quarter FY08 GAAP diluted EPS is expected to be approximately $0.95 to $0.97 and non-GAAP diluted EPS is expected to be approximately $1.01 to $1.03. Fourth quarter FY08 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.06 per share, related primarily to the amortization of purchased intangibles.

These estimates do not reflect the anticipated financial impact of HP's acquisition of Electronic Data Systems Corporation, which is expected to be completed in the fourth quarter of FY08.

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 FY08 earnings conference call is accessible via an audio webcast at www.hp.com/investor/q32008webcast.

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 $113.1 billion for the four fiscal quarters ended July 31, 2008. More information about HP is available at http://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, acquisition synergies 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 and integration plans; any statements concerning the expected development, performance or market share relating to products or services; any statements regarding pending business combination transactions; 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 and integration plans; the possibility that the expected benefits of pending business combination transactions may not materialize as expected or that the transactions may not be timely completed; the resolution of pending investigations, claims and disputes; and other risks that are described in HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2007 and HP's other filings with the Securities and Exchange Commission, including HP's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2008. As in prior periods, 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, 2008. In particular, determining HP's actual tax balances and provisions as of July 31, 2008 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 http://www.hp.com/hpinfo/newsroom/.

(C) 2008 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.

               HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
            CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
                             (Unaudited)
                (In millions except per share amounts)

                                               Three months ended
                                           ---------------------------
                                           July 31, April 30, July 31,
                                             2008     2008      2007
                                           -------- --------- --------

Net revenue                                $28,032  $ 28,262  $25,377

Costs and expenses(a):
  Cost of sales                             21,253    21,261   19,164
  Research and development                     895       908      917
  Selling, general and administrative        3,137     3,275    3,002
  Amortization of purchased intangible
   assets                                      213       211      183
  In-process research and development
   charges                                       -        13        -
  Restructuring                                  5         4       (5)
                                           -------- --------- --------
    Total costs and expenses                25,503    25,672   23,261
                                           -------- --------- --------

Earnings from operations                     2,529     2,590    2,116

Interest and other, net                         23         3      170
                                           -------- --------- --------

Earnings before taxes                        2,552     2,593    2,286

Provision for taxes(b)                         525       536      508
                                           -------- --------- --------

Net earnings                               $ 2,027  $  2,057  $ 1,778
                                           ======== ========= ========

Net earnings per share:
  Basic                                    $  0.82  $   0.83  $  0.68
  Diluted                                  $  0.80  $   0.80  $  0.66


Cash dividends declared per share          $  0.16  $      -  $  0.16

Weighted-average shares used to compute net earnings per share:
  Basic                                      2,459     2,473    2,600
  Diluted                                    2,533     2,557    2,697

(a) Stock-based compensation expense included under SFAS 123(R) was as
 follows:
    Cost of sales                          $    34  $     36  $    34
    Research and development                    16        19       19
    Selling, general and administrative         90        97       91
                                           -------- --------- --------
      Total costs and expenses             $   140  $    152  $   144

(b) Tax benefit from stock-based
 compensation                              $   (38) $    (45) $   (36)
               HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
            CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
                             (Unaudited)
                (In millions except per share amounts)

                                                     Nine months ended
                                                     -----------------
                                                     July 31, July 31,
                                                       2008     2007
                                                     -------- --------

Net revenue                                          $84,761  $75,993

Costs and expenses(a):
  Cost of sales                                       64,013   57,583
  Research and development                             2,701    2,697
  Selling, general and administrative                  9,653    8,954
  Amortization of purchased intangible assets            630      596
  In-process research and development charges             13      186
  Restructuring                                           19      407
  Pension curtailments and pension settlements, net        -     (517)
                                                     -------- --------
    Total costs and expenses                          77,029   69,906
                                                     -------- --------

Earnings from operations                               7,732    6,087

Interest and other, net                                   98      391
                                                     -------- --------

Earnings before taxes                                  7,830    6,478

Provision for taxes(b)                                 1,613    1,378
                                                     -------- --------

Net earnings                                         $ 6,217  $ 5,100
                                                     ======== ========

Net earnings per share:
  Basic                                              $  2.49  $  1.93
  Diluted                                            $  2.41  $  1.87


Cash dividends declared per share                    $  0.32  $  0.32

Weighted-average shares used to compute net earnings per share:
  Basic                                                2,497    2,648
  Diluted                                              2,577    2,734

(a) Stock-based compensation expense included under SFAS 123(R) was as
 follows:
    Cost of sales                                    $   106  $   121
    Research and development                              55       56
    Selling, general and administrative                  288      284
                                                     -------- --------
      Total costs and expenses                       $   449  $   461

(b) Tax benefit from stock-based compensation        $  (130) $  (128)
               HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
     ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
               OPERATING MARGIN AND EARNINGS PER SHARE
                             (Unaudited)
                (In millions except per share amounts)

                 Three             Three             Three
                  months            months            months
                  ended  Diluted    ended  Diluted    ended  Diluted
                  July    earnings April    earnings  July    earnings
                   31,      per      30,      per      31,      per
                  2008     share    2008     share    2007     share
                 ----------------- ----------------- -----------------

GAAP net
 earnings        $2,027    $ 0.80  $2,057  $   0.80  $1,778    $ 0.66

Non-GAAP
 adjustments:
  Amortization
   of purchased
   intangible
   assets           213      0.08     211      0.08     183      0.07
  In-process
   research and
   development
   charges            -         -      13      0.01       -         -
  Restructuring       5         -       4         -      (5)        -
  Pension
   curtailments
   and pension
   settlements,
   net                -         -       -         -       -         -
  Adjustments
   for taxes        (57)    (0.02)    (56)    (0.02)    (44)    (0.02)
                 ------- --------- ------- --------- ------- ---------

Non-GAAP net
 earnings        $2,188    $ 0.86  $2,229  $   0.87  $1,912    $ 0.71
                 ======= ========= ======= ========= ======= =========


GAAP earnings
 from operations $2,529            $2,590            $2,116

Non-GAAP
 adjustments:
  Amortization
   of purchased
   intangible
   assets           213               211               183
  In-process
   research and
   development
   charges            -                13                 -
  Restructuring       5                 4                (5)
  Pension
   curtailments
   and pension
   settlements,
   net                -                 -                 -
                 -------           -------           -------

Non-GAAP
 earnings from
 operations      $2,747            $2,818            $2,294
                 =======           =======           =======

GAAP operating
 margin               9%                9%                8%
Non-GAAP
 adjustments          1%                1%                1%
                 -------           -------           -------

Non-GAAP
 operating
 margin              10%               10%                9%
                 =======           =======           =======
               HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
     ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
               OPERATING MARGIN AND EARNINGS PER SHARE
                             (Unaudited)
                (In millions except per share amounts)

                                   Nine               Nine
                                   months             months
                                   ended              ended
                                   July   Diluted     July   Diluted
                                    31,    earnings    31,    earnings
                                    2008  per share    2007  per share
                                  -----------------  -----------------

GAAP net earnings                 $6,217  $   2.41   $5,100  $   1.87

Non-GAAP adjustments:
  Amortization of purchased
   intangible assets                 630      0.24      596      0.22
  In-process research and
   development charges                13      0.01      186      0.07
  Restructuring                       19      0.01      407      0.15
  Pension curtailments and
   pension settlements, net            -         -     (517)    (0.19)
  Adjustments for taxes             (171)    (0.07)    (114)    (0.05)
                                  ------- ---------  ------- ---------

Non-GAAP net earnings             $6,708  $   2.60   $5,658  $   2.07
                                  ======= =========  ======= =========


GAAP earnings from operations     $7,732             $6,087

Non-GAAP adjustments:
  Amortization of purchased
   intangible assets                 630                596
  In-process research and
   development charges                13                186
  Restructuring                       19                407
  Pension curtailments and
   pension settlements, net            -               (517)
                                  -------            -------

Non-GAAP earnings from operations $8,394             $6,759
                                  =======            =======

GAAP operating margin                  9%                 8%
Non-GAAP adjustments                   1%                 1%
                                  -------            -------

Non-GAAP operating margin             10%                 9%
                                  =======            =======
               HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                CONSOLIDATED CONDENSED BALANCE SHEETS
                            (In millions)

                                                July 31,   October 31,
                                                  2008        2007
                                               ----------- -----------
                                               (unaudited)

ASSETS

Current assets:
  Cash and cash equivalents                    $    14,783 $    11,293
  Short-term investments                                64         152
  Accounts receivable                               13,754      13,420
  Financing receivables                              2,594       2,507
  Inventory                                          8,160       8,033
  Other current assets                              11,681      11,997
                                               ----------- -----------

    Total current assets                            51,036      47,402
                                               ----------- -----------

Property, plant and equipment                        7,971       7,798

Long-term financing receivables and other
 assets                                             10,306       7,647

Goodwill and purchased intangible assets            26,581      25,852
                                               ----------- -----------

Total assets                                   $    95,894 $    88,699
                                               =========== ===========


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Notes payable and short-term borrowings      $     3,591 $     3,186
  Accounts payable                                  14,021      11,787
  Employee compensation and benefits                 3,206       3,465
  Taxes on earnings                                    806       1,891
  Deferred revenue                                   5,664       5,025
  Other accrued liabilities                         14,612      13,906
                                               ----------- -----------

    Total current liabilities                       41,900      39,260
                                               ----------- -----------

Long-term debt                                       6,628       4,997
Other liabilities                                    8,871       5,916

Stockholders' equity                                38,495      38,526
                                               ----------- -----------

Total liabilities and stockholders' equity     $    95,894 $    88,699
                                               =========== ===========
               HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
           CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                             (Unaudited)
                            (In millions)

                                  Three months ended Nine months ended
                                    July 31, 2008      July 31, 2008
                                  ------------------ -----------------

Cash flows from operating
 activities:
  Net earnings                    $           2,027  $          6,217
  Adjustments to reconcile net
   earnings to net cash provided
   by operating activities:
    Depreciation and amortization               759             2,268
    Stock-based compensation
     expense                                    140               449
    Provision for bad debt and
     inventory                                  111               296
    In-process research and
     development charges                          -                13
    Restructuring                                 5                19
    Deferred taxes on earnings                  177             1,163
    Excess tax benefit from
     stock-based compensation                   (50)             (213)
    Other, net                                   (2)              (25)

    Changes in assets and
     liabilities:
      Accounts and financing
       receivables                             (239)             (437)
      Inventory                                (541)             (255)
      Accounts payable                        1,590             2,148
      Taxes on earnings                         101              (269)
      Restructuring                             (14)              (69)
      Other assets and
       liabilities                             (701)               10
                                  ------------------ -----------------
        Net cash provided by
         operating activities                 3,363            11,315
                                  ------------------ -----------------

Cash flows from investing
 activities:
    Investment in property, plant
     and equipment                             (651)           (1,966)
    Proceeds from sale of
     property, plant and
     equipment                                   78               271
    Purchases of available-for-
     sale securities and other
     investments                                 (8)              (86)
    Maturities and sales of
     available-for-sale
     securities and other
     investments                                 21               212
    Payments made in connection
     with business acquisitions,
     net                                       (213)           (1,478)
                                  ------------------ -----------------
      Net cash used in investing
       activities                              (773)           (3,047)
                                  ------------------ -----------------

Cash flows from financing
 activities:
    Issuance (repayment) of
     commercial paper and notes
     payable, net                             1,877               (21)
    Issuance of debt                             36             3,054
    Payment of debt                             (43)           (1,051)
    Issuance of common stock
     under employee stock plans                 430             1,347
    Repurchase of common stock               (1,551)           (7,720)
    Excess tax benefit from
     stock-based compensation                    50               213
    Dividends                                  (197)             (600)
                                  ------------------ -----------------
       Net cash provided by (used
        in) financing activities                602            (4,778)
                                  ------------------ -----------------

Increase in cash and cash
 equivalents                                  3,192             3,490
Cash and cash equivalents at
 beginning of period                         11,591            11,293
                                  ------------------ -----------------
Cash and cash equivalents at end
 of period                        $          14,783  $         14,783
                                  ================== =================
                HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                           SEGMENT INFORMATION
                               (Unaudited)
                              (In millions)

                                               Three months ended
                                           ---------------------------
                                           July 31, April 30, July 31,
                                             2008     2008    2007(a)
                                           -------- --------- --------

Net revenue:

    Enterprise Storage and Servers         $ 4,741   $ 4,780  $ 4,516
    HP Services                              4,753     4,627    4,165
    HP Software                                781       727      606
                                           -------- --------- --------
  Technology Solutions Group                10,275    10,134    9,287
                                           -------- --------- --------
  Personal Systems Group                    10,254    10,071    8,894
  Imaging and Printing Group                 6,979     7,591    6,751
  HP Financial Services                        680       685      582
  Corporate Investments                        271       230      220
                                           -------- --------- --------
  Total Segments                            28,459    28,711   25,734
  Eliminations of intersegment net revenue
   and other                                  (427)     (449)    (357)
                                           -------- --------- --------

Total HP Consolidated                      $28,032   $28,262  $25,377
                                           ======== ========= ========

Earnings (Loss) from operations:

    Enterprise Storage and Servers         $   544   $   655  $   507
    HP Services                                574       508      417
    HP Software                                122        93       51
                                           -------- --------- --------
  Technology Solutions Group                 1,240     1,256      975
                                           -------- --------- --------
  Personal Systems Group                       587       544      519
  Imaging and Printing Group                 1,048     1,230      981
  HP Financial Services                         51        47       39
  Corporate Investments                         26         6       (5)
                                           -------- --------- --------
    Total Segments                           2,952     3,083    2,509

  Corporate and unallocated costs and
   eliminations                                (85)     (134)    (101)
  Unallocated costs related to stock-based
   compensation expense                       (120)     (131)    (114)
  Amortization of purchased intangible
   assets                                     (213)     (211)    (183)
  In-process research and development
   charges                                       -       (13)       -
  Restructuring                                 (5)       (4)       5
  Pension curtailments and pension
   settlements, net                              -         -        -
  Interest and other, net                       23         3      170
                                           -------- --------- --------

Total HP Consolidated Earnings Before
 Taxes                                     $ 2,552   $ 2,593  $ 2,286
                                           ======== ========= ========

(a) Certain fiscal 2008 organizational reclassifications have been
     reflected retroactively to provide improved visibility and
     comparability. For each of the quarters in fiscal year 2007, the
     reclassifications resulted in the transfer of revenue and
     operating profit among the Enterprise Storage and Servers, HP
     Services and HP Software segments within the Technology Solutions
     Group. There was no impact on the previously reported financial
     results for the other segments.
                HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                           SEGMENT INFORMATION
                               (Unaudited)
                              (In millions)

                                                     Nine months ended
                                                         July 31,
                                                     -----------------
                                                       2008   2007(a)
                                                     -------- --------

Net revenue:

    Enterprise Storage and Servers                   $14,341  $13,531
    HP Services                                       13,758   12,222
    HP Software                                        2,174    1,772
                                                     -------- --------
  Technology Solutions Group                          30,273   27,525
                                                     -------- --------
  Personal Systems Group                              31,116   26,276
  Imaging and Printing Group                          21,882   20,911
  HP Financial Services                                2,007    1,679
  Corporate Investments                                  719      552
                                                     -------- --------
    Total Segments                                    85,997   76,943
  Eliminations of intersegment net revenue and other  (1,236)    (950)
                                                     -------- --------

Total HP Consolidated                                $84,761  $75,993
                                                     ======== ========

Earnings (Loss) from operations:

    Enterprise Storage and Servers                   $ 1,872  $ 1,412
    HP Services                                        1,571    1,272
    HP Software                                          266       76
                                                     -------- --------
  Technology Solutions Group                           3,709    2,760
                                                     -------- --------
  Personal Systems Group                               1,759    1,350
  Imaging and Printing Group                           3,428    3,221
  HP Financial Services                                  141      107
  Corporate Investments                                   40      (52)
                                                     -------- --------
    Total Segments                                     9,077    7,386
  Corporate and unallocated costs and eliminations      (308)    (242)
  Unallocated costs related to stock-based
   compensation expense                                 (375)    (385)
  Amortization of purchased intangible assets           (630)    (596)
  In-process research and development charges            (13)    (186)
  Restructuring                                          (19)    (407)
  Pension curtailments and pension settlements, net        -      517
  Interest and other, net                                 98      391
                                                     -------- --------

Total HP Consolidated Earnings Before Taxes          $ 7,830  $ 6,478
                                                     ======== ========


(a) Certain fiscal 2008 organizational reclassifications have been
     reflected retroactively to provide improved visibility and
     comparability. For each of the quarters in fiscal year 2007, the
     reclassifications resulted in the transfer of revenue and
     operating profit among the Enterprise Storage and Servers, HP
     Services and HP Software segments within the Technology Solutions
     Group. There was no impact on the previously reported financial
     results for the other segments.
               HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                 SEGMENT / BUSINESS UNIT INFORMATION
                             (Unaudited)
                            (In millions)

                                               Three months ended
                                           ---------------------------
                                           July 31, April 30, July 31,
                                             2008     2008    2007(a)
                                           -------- --------- --------

Net revenue:

      Industry standard servers            $ 2,874  $  2,818  $ 2,814
      Business critical systems                829       919      811
      Storage                                1,038     1,043      891
                                           -------- --------- --------
    Enterprise Storage and Servers           4,741     4,780    4,516
                                           -------- --------- --------
      Technology services                    2,394     2,331    2,128
      Outsourcing services                   1,456     1,370    1,239
      Consulting and integration               903       926      798
                                           -------- --------- --------
    HP Services                              4,753     4,627    4,165
                                           -------- --------- --------
      Business technology optimization(b)      642       593      487
      Other(b)                                 139       134      119
                                           -------- --------- --------
    HP Software                                781       727      606
                                           -------- --------- --------
  Technology Solutions Group                10,275    10,134    9,287
                                           -------- --------- --------
      Notebooks                              5,350     5,373    4,254
      Desktops                               4,158     3,921    3,933
      Workstations                             468       494      441
      Handhelds                                 90       102      116
      Other                                    188       181      150
                                           -------- --------- --------
  Personal Systems Group                    10,254    10,071    8,894
                                           -------- --------- --------
      Commercial Hardware                    1,567     1,811    1,658
      Consumer Hardware                        861       974      996
      Supplies                               4,551     4,812    4,097
      Other                                      -        (6)       -
                                           -------- --------- --------
  Imaging and Printing Group                 6,979     7,591    6,751
                                           -------- --------- --------
  HP Financial Services                        680       685      582
  Corporate Investments                        271       230      220
                                           -------- --------- --------
      Total Segments                        28,459    28,711   25,734
                                           -------- --------- --------

  Eliminations of intersegment net revenue
   and other                                  (427)     (449)    (357)
                                           -------- --------- --------

Total HP Consolidated                      $28,032  $ 28,262  $25,377
                                           ======== ========= ========


(a) Certain fiscal 2008 organizational reclassifications have been
     reflected retroactively to provide improved visibility and
     comparability. For each of the quarters in fiscal year 2007, the
     reclassifications resulted in the transfer of revenue among
     Enterprise Storage and Servers, HP Services and HP Software
     segments within the Technology Solutions Group. In addition,
     revenue was transferred among the business units within the
     Imaging and Printing Group and among the business units within
     the Personal Systems Group, but there was no change to the
     previously reported revenue for either segment as a whole. There
     was no impact on the previously reported financial results for
     the HP Financial Services and Corporate Investments segments.

(b) The OpenView business unit was renamed as "Business Technology
     Optimization" and the OpenCall and Other business unit was
     renamed as "Other" effective in fiscal 2008. The renamed "Other"
     business unit includes primarily the OpenCall and Business
     Information Optimization products.
               HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                 SEGMENT / BUSINESS UNIT INFORMATION
                             (Unaudited)
                            (In millions)

                                                     Nine months ended
                                                         July 31,
                                                     -----------------
                                                       2008   2007(a)
                                                     -------- --------

Net revenue:

      Industry standard servers                      $ 8,680  $ 8,321
      Business critical systems                        2,603    2,519
      Storage                                          3,058    2,691
                                                     -------- --------
    Enterprise Storage and Servers                    14,341   13,531
                                                     -------- --------
      Technology services                              6,966    6,310
      Outsourcing services                             4,129    3,568
      Consulting and integration                       2,663    2,344
                                                     -------- --------
    HP Services                                       13,758   12,222
                                                     -------- --------
      Business technology optimization(b)              1,783    1,384
      Other(b)                                           391      388
                                                     -------- --------
    HP Software                                        2,174    1,772
                                                     -------- --------
  Technology Solutions Group                          30,273   27,525
                                                     -------- --------
      Notebooks                                       16,387   12,486
      Desktops                                        12,480   11,667
      Workstations                                     1,429    1,248
      Handhelds                                          281      423
      Other                                              539      452
                                                     -------- --------
  Personal Systems Group                              31,116   26,276
                                                     -------- --------
      Commercial Hardware                              5,104    4,983
      Consumer Hardware                                3,015    3,245
      Supplies                                        13,762   12,683
      Other                                                1        -
                                                     -------- --------
  Imaging and Printing Group                          21,882   20,911
                                                     -------- --------
  HP Financial Services                                2,007    1,679
  Corporate Investments                                  719      552
                                                     -------- --------
      Total Segments                                  85,997   76,943
                                                     -------- --------

  Eliminations of intersegment net revenue and other  (1,236)    (950)
                                                     -------- --------

Total HP Consolidated                                $84,761  $75,993
                                                     ======== ========


(a) Certain fiscal 2008 organizational reclassifications have been
     reflected retroactively to provide improved visibility and
     comparability. For each of the quarters in fiscal year 2007, the
     reclassifications resulted in the transfer of revenue among
     Enterprise Storage and Servers, HP Services and HP Software
     segments within the Technology Solutions Group. In addition,
     revenue was transferred among the business units within the
     Imaging and Printing Group and among the business units within
     the Personal Systems Group, but there was no change to the
     previously reported revenue for either segment as a whole. There
     was no impact on the previously reported financial results for
     the HP Financial Services and Corporate Investments segments.

(b) The OpenView business unit was renamed as "Business Technology
     Optimization" and the OpenCall and Other business unit was
     renamed as "Other" effective in fiscal 2008. The renamed "Other"
     business unit includes primarily the OpenCall and Business
     Information Optimization products.
               HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                CALCULATION OF NET EARNINGS PER SHARE
                             (Unaudited)
                (In millions except per share amounts)

                                               Three months ended
                                           ---------------------------
                                           July 31, April 30, July 31,
                                             2008     2008      2007
                                           -------- --------- --------

Numerator:
  Net earnings                               $2,027    $2,057   $1,778
  Adjustment for interest expense on zero-
   coupon subordinated convertible notes,
   net of taxes                                   -         1        1
                                           -------- --------- --------

  Net earnings, adjusted                     $2,027    $2,058   $1,779
                                           ======== ========= ========

Denominator:
  Weighted-average shares used to compute
   basic EPS                                  2,459     2,473    2,600
  Effect of dilutive securities:
    Dilution from employee stock plans           74        79       89
    Zero-coupon subordinated convertible
     notes                                        -         5        8
                                           -------- --------- --------
  Dilutive potential common shares               74        84       97
                                           -------- --------- --------

  Weighted-average shares used to compute
   diluted EPS                                2,533     2,557    2,697
                                           ======== ========= ========

Net earnings per share:
  Basic(a)                                   $ 0.82    $ 0.83   $ 0.68
  Diluted(b)                                 $ 0.80    $ 0.80   $ 0.66

(a) HP's basic earnings per share was calculated based on net earnings
     and the weighted-average number of shares outstanding during the
     reporting period.

(b) The diluted earnings per share included additional dilution from
     potential issuance of common stock, such as stock issuable
     pursuant to exercise of stock options and conversion of debt,
     except when such issuances would be antidilutive.
               HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                CALCULATION OF NET EARNINGS PER SHARE
                             (Unaudited)
                (In millions except per share amounts)

                                                         Nine months
                                                             ended
                                                           July 31,
                                                         -------------
                                                          2008   2007
                                                         ------ ------


Numerator:
  Net earnings                                           $6,217 $5,100
  Adjustment for interest expense on zero-coupon
   subordinated convertible notes, net of taxes               3      5
                                                         ------ ------

  Net earnings, adjusted                                 $6,220 $5,105
                                                         ====== ======

Denominator:
  Weighted-average shares used to compute basic EPS       2,497  2,648
  Effect of dilutive securities:
    Dilution from employee stock plans                       76     78
    Zero-coupon subordinated convertible notes                4      8
                                                         ------ ------
  Dilutive potential common shares                           80     86
                                                         ------ ------

  Weighted-average shares used to compute diluted EPS     2,577  2,734
                                                         ====== ======

Net earnings per share:
  Basic(a)                                               $ 2.49 $ 1.93
  Diluted(b)                                             $ 2.41 $ 1.87

(a) HP's basic earnings per share was calculated based on net earnings
     and the weighted-average number of shares outstanding during the
     reporting period.

(b) The diluted earnings per share included additional dilution from
     potential issuance of common stock, such as stock issuable
     pursuant to exercise of stock options and conversion of debt,
     except when such issuances would be antidilutive.
               HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
            CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
                             (Unaudited)
                (In millions except per share amounts)

                                               Three months ended
                                           ---------------------------
                                           July 31, April 30, July 31,
                                             2008     2008      2007
                                           -------- --------- --------

Numerator:
  Non-GAAP net earnings                    $  2,188 $   2,229 $  1,912
  Adjustment for interest expense on zero-
   coupon subordinated convertible notes,
   net of taxes                                   -         1        1
                                           -------- --------- --------

  Non-GAAP net earnings, adjusted          $  2,188 $   2,230 $  1,913
                                           ======== ========= ========

Denominator:
  Weighted-average shares used to compute
   basic EPS                                  2,459     2,473    2,600
  Effect of dilutive securities:
    Dilution from employee stock plans           74        79       89
    Zero-coupon subordinated convertible
     notes                                        -         5        8
                                           -------- --------- --------
  Dilutive potential common shares               74        84       97
                                           -------- --------- --------

  Weighted-average shares used to compute
   diluted EPS                                2,533     2,557    2,697
                                           ======== ========= ========

Non-GAAP net earnings per share:
  Basic(a)                                 $   0.89 $    0.90 $   0.74
  Diluted(b)                               $   0.86 $    0.87 $   0.71

(a) HP's basic non-GAAP earnings per share was calculated based on
     non-GAAP net earnings and the weighted-average number of shares
     outstanding during the reporting period.

(b) HP's diluted non-GAAP earnings per share included additional
     dilution from potential issuance of common stock, such as stock
     issuable pursuant to exercise of stock options and conversion of
     debt, except when such issuances would be antidilutive.
               HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
            CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
                             (Unaudited)
                (In millions except per share amounts)


                                                         Nine months
                                                             ended
                                                           July 31,
                                                         -------------
                                                          2008   2007
                                                         ------ ------

Numerator:
  Non-GAAP net earnings                                  $6,708 $5,658
  Adjustment for interest expense on zero-coupon
   subordinated convertible notes, net of taxes               3      5
                                                         ------ ------

  Non-GAAP net earnings, adjusted                        $6,711 $5,663
                                                         ====== ======

Denominator:
  Weighted-average shares used to compute basic EPS       2,497  2,648
  Effect of dilutive securities:
    Dilution from employee stock plans                       76     78
    Zero-coupon subordinated convertible notes                4      8
                                                         ------ ------
  Dilutive potential common shares                           80     86
                                                         ------ ------

  Weighted-average shares used to compute diluted EPS     2,577  2,734
                                                         ====== ======

Non-GAAP net earnings per share:
  Basic(a)                                               $ 2.69 $ 2.14
  Diluted(b)                                             $ 2.60 $ 2.07

(a) HP's basic non-GAAP earnings per share was calculated based on
     non-GAAP net earnings and the weighted-average number of shares
     outstanding during the reporting period.

(b) HP's diluted non-GAAP earnings per share included additional
     dilution from potential issuance of common stock, such as stock
     issuable pursuant to exercise of stock options and conversion of
     debt, except when such issuances would be antidilutive.


                  Use of Non-GAAP Financial Measures

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. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted earnings per share is diluted net earnings per share. The GAAP measure most directly comparable to gross cash is cash and cash equivalents. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above.

Use and Economic Substance of Non-GAAP Financial Measures Used by HP

Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the amortization of purchased intangible assets, pension curtailment and settlement gains and losses, and in-process research and development charges recorded during the relevant period. Non-GAAP net earnings and non-GAAP diluted earnings per share consist of net earnings or diluted net earnings per share excluding those same charges. In addition, non-GAAP net earnings and non-GAAP diluted earnings per share are adjusted by the amount of additional taxes or tax benefit associated with each non-GAAP item. HP's management uses these non-GAAP financial measures for purposes of evaluating HP's historical and prospective financial performance, as well as HP's performance relative to its competitors. HP's management also uses these non-GAAP measures to further its own understanding of HP's segment operating performance. HP believes that excluding those items mentioned above from these non-GAAP financial measures allows HP management to better understand HP's consolidated financial performance in relationship to the operating results of HP's segments, as management does not believe that the excluded items are reflective of ongoing operating results. More specifically, HP's management excludes each of those items mentioned above for the following reasons:

    --  Restructuring charges consist of costs primarily related to
        severance and benefits for employees terminated pursuant to a
        formal restructuring plan, including strategic reallocations
        or workforce reductions and early retirement programs. HP
        excludes these restructuring costs (and any reversals of
        charges recorded in prior periods) for purposes of calculating
        these non-GAAP measures because it believes that these
        historical costs do not reflect expected future operating
        expenses and do not contribute to a meaningful evaluation of
        HP's current operating performance or comparisons to HP's past
        operating performance.

    --  Purchased intangible assets consist primarily of customer
        contracts, customer lists, distribution agreements, technology
        patents, and products, trademarks and trade names purchased in
        connection with acquisitions. HP incurs charges relating to
        the amortization of these intangibles, and those charges are
        included in HP's GAAP presentation of earnings from
        operations, operating margin, net earnings and net earnings
        per share. Amortization charges for HP's purchased intangible
        assets are inconsistent in amount and frequency and are
        significantly impacted by the timing and magnitude of HP's
        acquisitions. Consequently, HP excludes these charges for
        purposes of calculating these non-GAAP measures to facilitate
        a more meaningful evaluation of HP's current operating
        performance and comparisons to HP's past operating
        performance.

    --  In the first quarter of fiscal 2007, HP recognized a net
        curtailment gain for its non-U.S. pension plans. The net gain
        primarily reflects a plan design change in Mexico where HP
        ceased pension accruals for current employees who did not meet
        defined criteria based on age and years of service (calculated
        as of December 31, 2006). In the second quarter of fiscal
        2007, HP recorded a pension curtailment gain primarily
        resulting from the decision to cease pension accruals under
        its U.S. defined benefit pension plan for all employees who
        were still accruing benefits under that plan. The curtailment
        gain was partially offset primarily by a settlement expense
        associated with the distribution and subsequent transfer of
        accrued pension benefits from HP's U.S. Excess Benefit Plan to
        HP's U.S. Executive Deferred Compensation Plan for the
        terminated vested plan participants. Because pension
        curtailment gains and pension settlement losses are
        inconsistent in amount and frequency, HP believes that
        eliminating these gains and losses for purposes of calculating
        these non-GAAP measures facilitates a more meaningful
        evaluation of HP's current operating performance and
        comparisons to HP's past operating performance.

    --  In-process research and development charges relate to amounts
        assigned to tangible and intangible assets to be used in
        research and development projects that have no alternative
        future use and therefore are charged to expense at the
        acquisition date. Charges for in-process research and
        development in connection with HP's acquisitions are reflected
        in HP's GAAP presentation of earnings from operations,
        operating margin, net earnings and net earnings per share.
        In-process research and development expenses are not
        indicative of HP's ongoing operating costs and are generally
        unpredictable. Accordingly, HP believes that eliminating these
        expenses for purposes of calculating these non-GAAP measures
        contributes to a meaningful evaluation of HP's current
        operating performance and comparisons to HP's past operating
        performance.

Gross cash is a non-GAAP measure that is defined as cash and cash equivalents plus short-term investments and certain long-term investments that may be liquidated within 90 days pursuant to the terms of existing put options or similar rights. HP's management uses gross cash for the purpose of determining the amount of cash available for investment in HP's businesses, funding strategic acquisitions, repurchasing stock and other purposes. HP's management also uses gross cash for the purposes of evaluating HP's historical and prospective liquidity, as well as to further its own understanding of HP's segment operating results. Because gross cash includes liquid assets that are not included in GAAP cash and cash equivalents, HP believes that gross cash provides a more accurate and complete assessment of HP's liquidity and segment operating results.

Material Limitations Associated with Use of Non-GAAP Financial Measures

These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HP's results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are:

    --  Items such as amortization of purchased intangible assets,
        though not directly affecting HP's cash position, represent
        the loss in value of intangible assets over time. The expense
        associated with this loss in value is not included in non-GAAP
        operating profit, non-GAAP operating margin, non-GAAP net
        earnings and non-GAAP diluted earnings per share and therefore
        does not reflect the full economic effect of the loss in value
        of those intangible assets.

    --  Items such as restructuring charges that are excluded from
        non-GAAP operating profit, non-GAAP operating margin, non-GAAP
        net earnings and non-GAAP diluted earnings per share can have
        a material impact on cash flows and earnings per share.

    --  HP may not be able to liquidate immediately the long-term
        investments included in gross cash, which may limit the
        usefulness of gross cash as a liquidity measure.

    --  Other companies may calculate non-GAAP operating profit,
        non-GAAP operating margin, non-GAAP net earnings, non-GAAP
        diluted earnings per share and gross cash differently than HP
        does, limiting the usefulness of those measures for
        comparative purposes.

Compensation for Limitations Associated with Use of Non-GAAP Financial Measures

HP compensates for the limitations on its use of non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this press release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations.

Usefulness of Non-GAAP Financial Measures to Investors

HP believes that providing non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by HP's management in its financial and operational decision-making and allows investors to see HP's results "through the eyes" of management. HP further believes that providing this information better enables HP's investors to understand HP's operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of HP's operating performance with the performance of other companies in HP's industry that supplement their GAAP results with non-GAAP financial measures that are calculated in a similar manner.

CONTACT: HP
David Shane, +1-650-857-3859
david.shane@hp.com
Emma McCulloch, +1-650-857-4183
emcculloch@hp.com
Asa Svanstrom, +1-650-857-2246 (Investors)
asa.svanstrom@hp.com
or
HP Media Hotline, +1-866-266-7272
pr@hp.com
www.hp.com/go/newsroom

SOURCE: HP