By Benjamin Pimentel
SAN FRANCISCO (MarketWatch) – Hewlett-Packard on Monday reported a higher quarterly profit, despite a dip in sales, as the Silicon Valley behemoth reeled from lower revenue in its key PC and printer segments.

But the Palo Alto, Calif.-based company also posted a higher revenue for its information-technology services business, underscoring H-P’s transformation from a traditional hardware maker.

Shares of H-P (HPQ 50.83, -0.19, -0.37%) dipped fractionally in after-hours trading; they closed the regular session up 2% to $51.02.

AT&T shares, bolstered by a 6.2% dividend, look attractive even if it loses the exclusive right to sell Apple’s iPhone.

The Palo Alto, Calif.-based company reported a fiscal fourth-quarter profit of $2.4 billion, or 99 cents a share, compared with a profit of $2.1 billion or 84 cents a share for the same period a year ago.

Revenue was $30.8 billion, down from $33.6 billion for the quarter in the previous year. Adjusted income was $1.14 a share.

Analysts had expected H-P to report earnings of $1.13 a share, on revenue of $30.4 billion, according to a consensus survey by Thomson Reuters.

For the current quarter, the company said it expects revenue of roughly $29.6 billion to $29.9 billion, and GAAP earnings in the range of 90 cents a share to 92 cents a share. H-P said it expects adjusted earnings in the range of $1.03 to $1.05.

Analysts currently expect the company to post adjusted earnings of $1.04 a share, on revenue of $29.7 billion, according to data from Thomson Reuters.
H-P’s personal-systems group, which includes its PC business, reported an 8% increase in shipments, but reported a 12% decline in revenue to $9.9 billion.

“That’s the story of the PC business, where you’ve got precipitous price declines and great values for customers,” analyst Crawford Del Prete of International Data Corp. said in an interview. “[H-P's] got what you need in this business: scale, leading-edge design. But the problem is prices are so aggressive, it makes it difficult to generate revenue.”

Del Prete acknowledged that H-P has a strong position in the PC market, and that it should get a boost “once prices start to firm up.”

Kaufman Brothers analyst Shaw Wu said the company’s results also confirm that H-P continues “to gain share at the expense of Dell.” (DELL 14.72, -0.07, -0.47%)

‘Printers look weak. The cash cow is still delivering, but through cost-cutting mostly.’

Roger Kay, Endpoint Technologies Associates
Meanwhile, H-P’s imaging and printing group, once considered the crown jewel of the company, suffered a 15% decline in revenue and posted a 20% drop in shipments.

“Printers look weak,” according to analyst Roger Kay of Endpoint Technologies Associates. “The cash cow is still delivering, but through cost-cutting mostly.”

Kay said the economic downturn may be a factor as “printers have even a longer life than PCs, and there’s a secular move to digital records away from paper.”

The brightest spot for the company came from its services business, which posted an 8% increase in revenue, underscoring the gains H-P is getting from its acquisition of EDS.

“That is where they are seeing revenue really hold up compared to the other groups,” Del Prete commented. “It’s showing the significant transformation of H-P from being an old-school hardware company to a company with a meaningful, predictable set of revenue associated with its service business.”

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