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Hewlett-Packard posts surprise revenue gain after PC sales jump

By Edwin Chan

SAN FRANCISCO (Reuters) - Hewlett-Packard Co posted a surprise increase in quarterly revenue after sales from its personal computer division climbed 12 percent, but a flat to declining performance from its other units underscored the company's uphill battle to revive growth.

HP sales rose a mere 1 percent to $27.6 billion in its fiscal third quarter from $27.2 billion a year earlier. Wall Street analysts had forecast a modest drop in revenue to $27.01 billion.

The Silicon Valley giant is undergoing a major overhaul aimed at cutting costs and re-orienting itself toward higher-margin businesses such as computing infrastructure. It's trying to reduce a reliance on PCs and move toward servers, storage and networking for enterprises - part of Chief Executive Officer Meg Whitman's effort to return the sprawling company to growth.

Whitman credited personal computer demand for "coming back some" as consumers and corporations upgraded ageing machines. She was pleased with 2 percent growth in revenue to $6.9 billion at the Enterprise Group, the company's second-largest business that deals in networking, storage and servers.

"It's a turnaround in a declining business," Whitman said in an interview. She singled out a 9 percent increase in sales of industry-standard servers in particular, saying uncertainty around Lenovo's acquisition of IBM Corp's low-end server unit helped steer business to HP.

"We've been able to capitalize on that uncertainty and our win rates are up against IBM," Whitman added.

She pegged Russia and China - countries whose relations with the United States have come under strain - as weak spots for PC sales, though Whitman said its Chinese business as a whole remained on solid footing.

HP intends to remain rigorous on costs to try and boost profitability. In May, it estimated another 11,000 to 16,000 more jobs needed to be cut on top of 34,000 previously announced.

It narrowed its earnings forecast for the full year to $3.70 to $3.74 per share, from $3.63 to $3.75. The company posted $1.7 billion or 89 cents per share of non-gaap diluted net earnings in the third quarter, up 3 percent and in line with forecasts.

Whitman said HP was assessing its $4 billion software business in view of an industry migration toward Internet-based or cloud software. And she said the company, with $4.9 billion in operating company net cash at the end of the fiscal third quarter, could make acquisitions if needed.

The company prefers to build its own capabilities and buying when it cannot develop inhouse, Whitman told analysts on a conference call. HP also remains committed to returning at least half its cash flow to shareholders, via dividends and buybacks.

"We're in a position to make acquisitions the way we weren't over the past year," she said.

Shares of the company dipped 0.8 percent to $34.84 after-hours. They closed at $35.12 on the New York Stock Exchange.

(Reporting by Edwin Chan; Editing by Bernard Orr)

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