 Q409 Investor Newsletter
Welcome to the newly revamped HP investor relations website. We made enhancements to the website to make it easier for investors to navigate and discover the content they are looking for. A company as broad as HP is mentioned often in the news. Our IR website is designed to bring you the news sources that we believe investors might find of interest. Additionally we integrated tools such as a historical stock price tracker.
Last week, HP held its annual Securities Analyst Meeting. In the well-attended event, HP executives outlined HP's strategy to capture an addressable $1.3 trillion market opportunity. HP believes it is uniquely positioned to gain share in this market given the following competitive advantages: 1) THE BROADEST TECHNOLOGY PORTFOLIO The amount of digital content generated is expected to grow exponentially over the coming years. Technologies such as virtualization, automation and power management will be critical to allow IT professionals to affordably scale their IT infrastructure to meet their computing needs. Technology has historically been defined into traditional categories of servers, storage, networking, software, services, etc. Those traditional lines are becoming blurred as companies like HP specifically design converged solutions such as HP blade matrix and HP virtual connect optimized to improve the scalability, affordability, reliability, availability, deployment and security of information technology. HP believes the data centers required to affordably deliver the cloud will be built on industry standard hardware optimized across compute, storage and networking, differentiated with software and delivered via services. While nascent today, market analysts project a $35 billion market opportunity in a category HP calls converged infrastructure. No other company has a broader portfolio of servers, storage, networking, management software and global services than HP to enable this transformation of IT. At the same time, HP's broad portfolio of printing and imaging products positions it well to capture the 200 billion analog printed pages that shift to digital each year. The IPG executive team presented a detailed plan to capture these pages at the analyst meeting. While focused on the future, IPG did indicate at the analyst meeting that sell-through of supplies was currently flattish. IPG indicated it expected sell-out and sell-in of supplies to converge in H1'10. I highly encourage you to view the replay and presentation on HP's investor relations website. http://phx.corporate-ir.net/phoenix.zhtml?c=71087&p=AnalystMeeting 2) THE LARGEST SCALE IN THE INDUSTRY HP is big for a reason. Its scale provides HP unique advantages not only in the leverage from a leaner cost structure, but also the leverage in sourcing industry standard parts. HP's massive scale in personal computers provides it with competitive advantages that it can leverage to other segments. As the industry's largest procurer of memory, processors, drives, etc., HP expects this scale to yield competitive advantages through better pricing and availability and to drive profitability and market share. At HP's analyst meeting, supply chain chief, Tony Prophet, and server and networking leader, Dave Donatelli, outlined HP's opportunities to leverage scale to simplify the supply chain, streamline design efforts, and drive efficiencies in how HP serves customers. While HP is benefiting today from its scale, CEO, Mark Hurd, indicated that better leveraging its supply chain can result in material opportunities for HP. 3) A LEANER COST STRUCTURE WITH FURTHER ROOM FOR OPTIMIZATION HP has made significant improvements in its cost structure in the past four years, particularly in IT, real estate, supply chain, warranty, and services. This improvement has enhanced HP's ability to compete not only with competitors based in Asia but also to grow into margin accretive categories such as storage, networking and software where it competes against companies with less competitive cost structures. While HP's cost structure is competitive today, HP has identified billions of dollars of cost savings that have yet to be captured. At the same time, HP does not believe it is adequately covering a $1.3 trillion addressable market. Once achieved, it expects to use these savings to invest further in portfolio enhancements and sales coverage while expanding operating margins. CFO, Cathie Lesjak, highlighted the impact of operating leverage in the business segments. Given the extended aging of IT equipment, when the market returns to growth, HP expects to benefit from solid operating leverage in businesses such as servers, storage and PCs.
HP PROVIDES OUTLOOK FOR 2010 At its analyst meeting, HP provided its outlook for 2010. HP stated that it expects revenues of $117 billion to $118 billion and non-GAAP diluted earnings per share of $4.20 to $4.30 in FY10. Measured against HP's Q4 outlook issued on its August earnings call, this would essentially result in revenue growth of 3% to 4% and non-GAAP EPS growth of 10% to 13%. On a GAAP basis, diluted EPS is expected to be $3.60 to $3.70 in FY10, representing anticipated growth of 17% to 20% due in part to expected lower non-GAAP adjustments. In addition, HP expects free cash flow of approximately $9 billion in FY10. HP affirmed its expectation for long-term growth rates in the 4 to 6 percent range. HP also furnished its model for 2010 segment growth rates and operating margins at the meeting. CEO, Mark Hurd, mentioned that IT budgets were currently being set and it was unclear exactly what the market would grow next year. HP's outlook assumes that it gains share in the markets that HP addresses. Should the IT market grow faster than HP expects, HP would expect to have better performance. KEY TAKE-AWAYS Mark Hurd wrapped up the analyst meeting indicating that he expected HP's best days were ahead of it. He mentioned that HP expected to gain share while improving margins given the significant opportunities to improve its sales coverage and its cost structure.
HP will be entering its quiet period on October 15th. If you were unable to attend the analyst meeting or have any follow-up questions, please feel free to contact HP investor relations at investor.relations@hp.com Regards,
Jim Burns
Vice President, HP Investor Relations
This newsletter 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 and its consolidated subsidiaries 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, currency exchange rates 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 current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; 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 HP and its 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 business combination transactions may not materialize as expected; and other risks that are described in HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2008 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 July 31, 2009. HP assumes no obligation and does not intend to update these forward-looking statements.
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