Still, the sales environment is difficult for large customers. "The enterprise market is even tougher, with sluggish corporate information-technology spending, aggressive competition and tough deal pricing," Fiorina said. Spending has been particularly tight among airlines, high-tech manufacturing and telecommunications companies. "There are some improvements in spending habits and overall tone, but we continue to believe a recovery won't happen until the second half of this year," she said. HP expects a second-half recovery based on macroeconomic indicators such as interest-rate cuts, employment, consumer confidence and business confidence, chief financial officer Bob Wayman said in an interview. The company expects its fiscal second-quarter revenue to be "modestly" lower. However, Wayman said, "around the merger, we think it's prudent to be conservative" and to provide estimates "that we have high confidence in." Geographically, Latin America was bad, spurring HP to take a $25m charge in its financing operation, Wayman said in the conference call. "Argentina has gone away from a business point of view, and the news in Venezuela worries us," he said, referring to a move on Wednesday that led to a 19 percent currency valuation decrease. The company's pro forma gross margins, a key measure of profitability, improved from 25.7 percent in the previous quarter to 26.9 percent, the company said. The operating cash flow was about $1.6bn. HP said improvements in PC, printing and imaging businesses were responsible for the improved results. Digital camera and photo printer revenue increased 30 percent from the most recent quarter, while PC sales increased 22 percent. However, with the exception of outsourcing, many products for large corporations saw declines, the company said. Server group needs work
HP's sales of servers -- high-end networked computers -- need work, Fiorina said. Unix servers, a crucial product line facing keen competition from Sun Microsystems and IBM, declined 7 percent from the most recent quarter and 21 percent from the year-ago quarter. Storage revenue dropped 4 percent sequentially and 13 percent from the year-ago quarter. Software revenue dropped 3 percent sequentially and 18 percent from the year-ago quarter. The Unix server group is profitable, though, an improvement over some previous quarters. Revenue for lower-end servers built with Intel CPUs is bleak. "We still struggle in the low-end IA-32 (Intel) server arena," Fiorina said. "HP has been losing momentum and money in our (Intel server) business. Our efforts here need to be beefed up quickly." Services grew 1 percent sequentially and 2 percent from the year-ago quarter. Boosting that segment was outsourcing, which increased 16 percent sequentially and 31 percent from the year-ago quarter. HP is working on advancements in its printer business, including areas such as invisible document coding, identification cards and mailing addresses, Fiorina said. Wayman added that the company is "vigorously defending our intellectual property," meaning that HP is cracking down on sales of non-HP products such as ink cartridges. In addition, HP has implemented part of its strategy for inexpensive inkjet printers costing less than $99 or even $49. "We have only introduced a small part of that line at this time, and we will see a major impact in the fall," Wayman said in the interview. "HP acknowledges we did not make the decision to move into the low-end space soon enough. We have been competing there with products not designed for that space." A key part of the new products is combining new ink cartridges with less ink capacity, lower manufacturing cost, and a smaller price tag than the $35 or so typical of higher-end inkjets. The new inkjets are "just as profitable for us," Wayman said.
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