HP's Glad Fourth-Quarter Tidings

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All in the Timing

Rival Dell (DELL), which reports fourth-quarter earnings on Nov. 20, remains vulnerable because it is more reliant on the corporate PC industry, an area where sales are expected to slow sharply in coming months. And while Dell has been making headway in selling to consumers through retail, it continues to hemorrhage red ink in that market and has struggled to make gains outside the U.S. Analysts say timing also worked in HP's favor. Many sales for the period were likely booked in August and early September, ahead of a miserable October selling period.

Also setting HP apart is a decision three years ago to focus on design and innovation in what had been thought to be a mature PC replacement market, where growth was expected to be stagnant or slow as consumers replaced PCs only every four or five years. With devices such as touch-screen PCs and easy-to-use software, HP has been nabbing market share from Dell, Toshiba, and other rivals, while also expanding the overall market by convincing consumers in developed markets to buy a second and third PC for the home, analysts say.

HP's focus on innovation has helped boost consumer and business interest in other segments such as printers and services. "Nothing changes people's minds as fast as great business performance," HP Chief Strategy and Technology Officer Shane Robison said in an interview with BusinessWeek earlier this month.

Expanding Holiday Shutdown

Even with its upbeat outlook, HP acknowledged it will not be immune from what economists predict will be a global recession. The company's revenue forecasts for the holiday sales season and fiscal 2009 were below Wall Street expectations. Part of that, HP says, will be due to unfavorable currency valuations. It also points to what will be a difficult pricing environment, analysts say. Average selling prices on PCs may slide 8% in 2009, compared with 2% in 2008, according to analysts at IDC.

In the meantime, Hurd and his executives continue to stress cost-cutting. In September, HP said it would lay off 24,600 employees following the EDS acquisition. And HP announced on Monday that it would expand its planned one-week holiday shutdown by an additional week to save costs. "Everyone on this staff has religion," Robison says. "It's all focus, focus, focus on fiscal discipline." HP will need that kind of religion as it braces for what's likely to be a rough year even for the most disciplined companies.

Edwards is a correspondent in BusinessWeek's Silicon Valley bureau.