HP profit margin hits 10 percent

By Scott Hillis

SAN FRANCISCO (Reuters) - Hewlett-Packard (HPQ.N), the world's biggest computer maker, on Tuesday posted a higher quarterly operating margin after cost cuts, and said strong growth abroad offset some weakness in the United States.

HP also saw a record cash flow of $4.8 billion (2.4 billion pounds) in its second quarter, leading its executives to estimate a 2008 total that would top an earlier forecast of $11 billion.

"We clearly expect to do a bit better than that. We are ahead of plan," Chief Financial Officer Cathie Lesjak said, noting that cash flow in HP's first two quarters had already topped $8 billion.

"Part of that is due to earnings, part of that is due to improvement in the working capital space," Lesjak said on a conference call with analysts.

Operating margin, excluding special items, was 10 percent, up from 9 percent a year earlier and 9.9 percent in the first quarter, HP said, citing cost cuts as a reason for the rise.

"Our cost initiatives are ongoing and they are significant and we expect them to generate additional leverage in our operating model," Chief Executive Mark Hurd told the call.

HP confirmed preliminary earnings figures for its fiscal second quarter released last week that showed a net profit of $2.1 billion, or 80 cents per share, compared with $1.8 billion, or 65 cents per share, a year earlier. Revenue rose to $28.3 billion, up 11 percent over that period.

Last week, HP also announced it was buying technology outsourcing company Electronic Data Systems EDS.N for $12.6 billion, seeking to bolster its services business to better compete against market leader International Business Machines (IBM.N).