HP's Numbers Aren't as Good as They Look

Man, Hewlett-Packard (NYSE: HPQ) couldn't have timed its acquisition of consulting firm EDS any better.

That $14 billion barnstormer deal closed Aug. 26, 2008. Since then, HP has been happy to report relatively strong year-over-year sales, because the extra cash from old EDS customers has been enough to outweigh slower sales elsewhere in the massive HP machine.

And next quarter, when HP gets to compare apples to apples once again, the results will overlap with the start of the Great Panic of 2008. The numbers won't be that hard to beat. If HP had placed that cut-over point any closer to late September, it would just have looked suspiciously good.

So with the help of EDS, HP reported $27.5 billion of third-quarter revenue. That's down 2% from the year-ago period. Oops, silly me -- adjust for currency effects and you get 4% growth instead. There, that's much better. Non-GAAP earnings per share bounced up by $0.05 to $0.91.

CEO Mark Hurd said that "HP's performance this quarter is a result of our strong business portfolio, efficient cost structure and scale." Back out the hefty but unspecified contributions from EDS, and he'd be singing a different song. HP is practicing "growth by acquisition" in the grand tradition of Oracle (Nasdaq: ORCL) and Cisco Systems (Nasdaq: CSCO).

When you break HP down into its component parts, you have to wonder about the company's strength in each sector. The enterprise storage and servers segment saw 23% lower sales than in 2008, while chief storage rival EMC (NYSE: EMC) dropped just 11%. IBM's (NYSE: IBM) equivalent segment lost 25% of its sales, so all is not lost. But IBM beats up on HP in the software segment with a mere 8% annual drop against HP's 22%.

The consumer-oriented computer business fell just 18% to $8.4 billion, despite a small uptick in unit volumes and a global market-leading stature. We'll have to wait another week to see how Dell (Nasdaq: DELL) stacks up there -- but third-party reports say that Dell shipped fewer systems this summer, so things are looking up for HP here.

HP remains a colossus of the technology industry, but its feet may be made of clay. If you held a gun to my head and told me to pick a tech giant to buy today, I'd probably go with EMC or Google (Nasdaq: GOOG), simply because their businesses seem much more stable than HP's.