Press Release: May 16, 2007

HP Reports Second Quarter 2007 Results

PALO ALTO, Calif.--(BUSINESS WIRE)--May 16, 2007--HP (NYSE:HPQ) today announced financial results for its second fiscal quarter ended April 30, 2007, with net revenue of $25.5 billion, representing growth of 13% year-over-year, or 10% when adjusted for the effects of currency.

GAAP operating profit was $2.1 billion and GAAP diluted earnings per share (EPS) was $0.65 per share, down from $0.66 in the prior year period and up 27% excluding a $0.15 tax settlement gain recorded in the prior year period. Non-GAAP operating profit was $2.3 billion, with non-GAAP diluted EPS of $0.70, up from $0.69 in the prior year period and up 30% excluding the $0.15 tax settlement gain. Non-GAAP financial information excludes $145 million of adjustments on an after-tax basis, or $0.05 per diluted share, related primarily to restructuring charges and amortization of purchased intangibles, and offset partially by a pension curtailment gain resulting from changes to the company's U.S. defined benefit pension plan. GAAP and non-GAAP financial information include all stock-based compensation expense in both current and prior year periods.

"This was a strong performance for HP," said Mark Hurd, HP chairman and chief executive officer. "We generated $3 billion of revenue growth, continued to expand earnings and achieved record cash flow from operations. While we still have considerable work ahead of us, I am confident we can continue to execute with discipline and deliver strong financial returns."

                              Q2 FY07       Q2 FY06        Y/Y ----------------------------- ------------- ------------- ------------ Net revenue ($B)              $       25.5  $       22.6           13% ----------------------------- ------------- ------------- ------------ GAAP operating margin                  8.3%          7.3%      1.0 pts ----------------------------- ------------- ------------- ------------ GAAP net earnings ($B)        $        1.8  $        1.9           -7% ----------------------------- ------------- ------------- ------------ GAAP diluted EPS              $       0.65  $       0.66           -2% ----------------------------- ------------- ------------- ------------ Non-GAAP operating margin              9.0%          8.0%      1.0 pts ----------------------------- ------------- ------------- ------------ Non-GAAP net earnings ($B)    $        1.9  $        2.0           -4% ----------------------------- ------------- ------------- ------------ Non-GAAP diluted EPS          $       0.70  $       0.69            1% ----------------------------- ------------- ------------- ------------

Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below.

During the quarter, on a year-over-year basis, revenue in the Americas grew 11% to $10.7 billion, revenue in Europe, the Middle East and Africa grew 14% to $10.3 billion, and revenue in Asia Pacific grew 16% to $4.5 billion. When adjusted for the effects of currency, revenue in the Americas grew 11%, revenue in Europe, the Middle East and Africa grew 7%, and revenue in Asia Pacific grew 13%.

Personal Systems Group

Personal Systems Group (PSG) revenue grew 24% year-over-year to $8.7 billion, with unit shipments up 30% on a year-over-year basis. Notebook revenue grew 45% over the prior year period, while desktop revenue grew 9%. Commercial client revenue grew 13% year-over-year, while Consumer client revenue increased 41%. Operating profit was $417 million, or 4.8% of revenue, up from a profit of $248 million, or 3.6% of revenue, in the prior year period.

Imaging and Printing Group

Imaging and Printing Group (IPG) revenue grew 6% year-over-year to $7.2 billion. On a year-over-year basis, supplies revenue grew 10%, commercial hardware revenue grew 3% and consumer hardware revenue declined 2%. Printer unit shipments increased 11% year-over-year, with consumer printer hardware units up 7% and commercial printer hardware units up 21%. Momentum in key growth initiatives continued, with printer-based multi-function printers up 40%, and color laser printers up 19%. HP Indigo Press printed page volume grew 43% over the prior year period. Operating profit was $1.2 billion, or 16.3% of revenue, up from a profit of $1.0 billion, or 15.5% of revenue, in the prior year period.

Enterprise Storage and Servers

Enterprise Storage and Servers (ESS) reported revenue of $4.6 billion, up 8% over the prior year period. On a year-over-year basis, industry-standard server revenue increased 17%, with blade revenue up 58%. Storage revenue grew 1%, with revenue growth of 10% in the midrange EVA line offset by declines in the high-end array and tape businesses. Business critical systems revenue declined 6%, with Integrity systems growth of 60% offset by declines in PA-RISC and Alpha. Operating profit was $407 million, or 8.8% of revenue, up from a profit of $322 million, or 7.5% of revenue, in the prior year period.

HP Services

HP Services (HPS) revenue increased 7% year-over-year to $4.1 billion. Revenue in Technology Services grew 3% over the prior year period, while Consulting and Integration revenue rose 8% and Outsourcing Services revenue rose 12%. Operating profit was $459 million, or 11.1% of revenue, up from a profit of $345 million, or 8.9% of revenue, in the prior year period.

HP Software

HP Software revenue grew 58% over the prior year period to $523 million, led by strong growth from the businesses acquired in HP's purchase of Mercury Interactive. On a year-over-year basis, HP OpenView grew 6% excluding Mercury, and HP OpenCall declined 13%. Operating profit was $42 million, or 8.0% of revenue, up from a profit of $3 million, or 0.9% of revenue, in the prior year period.

Financial Services

HP Financial Services (HPFS) reported revenue of $550 million, an increase of 6% year-over-year. Financing volume and net portfolio assets increased 8% and 6% respectively, over the prior year period. Operating profit was $36 million, or 6.5% of revenue, down from a profit of $39 million, or 7.5% of revenue, in the prior year period.

Asset management

HP generated $4.2 billion in cash flow from operations. Inventory ended the quarter at $7.3 billion, down $1.1 billion sequentially and up $510 million year-over-year. Accounts receivable increased $1.2 billion sequentially and increased $1.8 billion over the prior year period to $11.6 billion. Accounts payable increased $145 million sequentially and grew $1.4 billion over the prior year period to $11.5 billion. HP's dividend payment of $0.08 per share in the second quarter resulted in cash usage of $213 million. During the quarter, HP repurchased $2.2 billion of shares in the open market and completed the prepaid variable share purchase program with the receipt of the final 6 million shares. In addition, HP entered into an accelerated share repurchase program for $1.8 billion. In total, approximately 100 million shares were acquired during the quarter. HP exited the quarter with $12.3 billion in gross cash, which includes cash and cash equivalents of $12.2 billion, short-term investments of $74 million, and certain long-term investments of $23 million.

Outlook

HP estimates Q3 FY07 revenue will be approximately $23.7 billion to $23.9 billion.

Third quarter FY07 GAAP diluted EPS is expected to be in the range of $0.60 to $0.61, and non-GAAP diluted EPS is expected to be in the range of $0.64 to $0.65. Non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.04 per share, related primarily to the amortization of purchased intangible assets.

HP estimates FY07 revenue will be approximately $100.5 billion to $100.9 billion.

FY07 GAAP diluted EPS is expected to be in the range of $2.51 to $2.53, and FY07 non-GAAP diluted EPS is expected to be in the range of $2.75 to $2.77. FY07 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.24 per share, related primarily to the amortization of purchased intangible assets, in process research and development charges, restructuring charges and pension curtailment gains.

More information on HP's quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations website at www.hp.com/investor/home.

HP's Q2 FY07 earnings conference call is accessible via an audio webcast at www.hp.com/investor/q22007webcast.

About HP

HP focuses on simplifying technology experiences for all of its customers - from individual consumers to the largest businesses. With a portfolio that spans printing, personal computing, software, services and IT infrastructure, HP is among the world's largest IT companies, with revenue totaling $97.1 billion for the four fiscal quarters ended April 30, 2007. More information about HP is available at www.hp.com.

Use of non-GAAP financial information

To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its business, the substance behind HP management's decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which HP management compensates for those limitations, and the substantive reasons why HP management believes that these non-GAAP measures provide useful information to investors is included under "Use of Non-GAAP Financial Measures" after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for operating profit, operating margin, net earnings, diluted earnings per share, or cash and cash equivalents prepared in accordance with GAAP.

Forward-looking statements

This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, earnings, tax provisions, cash flows, benefit obligations, share repurchases or other financial items; any statements of the plans, strategies, and objectives of management for future operations, including execution of cost reduction programs and restructuring plans; any statements concerning the expected development, performance or market share relating to products or services; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include macroeconomic and geopolitical trends and events; execution and performance of contracts by suppliers, customers and partners; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions related to pension and other post-retirement costs; expectations and assumptions relating to the execution and timing of cost reduction programs and restructuring plans; the resolution of pending investigations, claims and disputes; and other risks that are described in HP's Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2007 and HP's other filings with the Securities and Exchange Commission, including HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2006. As in prior quarters, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP's Form 10-Q for the fiscal quarter ended April 30, 2007. In particular, determining HP's actual tax balances and provisions as of April 30, 2007 and for the fiscal quarter then ended requires extensive internal and external review of tax data (including consolidating and reviewing the tax provisions of numerous domestic and foreign entities) which is being completed in the ordinary course of preparing HP's Form 10-Q. HP assumes no obligation and does not intend to update these forward-looking statements.

Note to editors: More news from HP, including links to RSS feeds, is available at www.hp.com/hpinfo/newsroom/.

(C) 2007 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.

            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES            CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS                             (Unaudited)                (In millions except per share amounts)                                             Three months ended                                --------------------------------------                                 April 30,    January 31,   April 30,                                    2007         2007         2006                                ------------ ------------- -----------  Net revenue                         $25,534       $25,082     $22,554  Costs and expenses(a):     Cost of sales                   19,283        19,136      16,970     Research and development           903           877         930     Selling, general and      administrative                  3,044         2,908       2,858     Amortization of purchased      intangible assets                 212           201         151     In-process research and      development charges                19           167           2     Restructuring                      453           (41)        (14)     Pension curtailments and      pension settlements, net         (508)           (9)          -                                ------------ ------------- -----------          Total costs and           expenses                  23,406        23,239      20,897                                ------------ ------------- -----------  Earnings from operations              2,128         1,843       1,657  Interest and other, net                  87           111         157 Gains on investments                     13            10           6                                ------------ ------------- -----------  Earnings before taxes                 2,228         1,964       1,820  Provision for (benefit from) taxes(b)                               453           417         (79)                                ------------ ------------- -----------  Net earnings                         $1,775        $1,547      $1,899                                ============ ============= ===========  Net earnings per share:     Basic                            $0.67         $0.57       $0.68     Diluted                          $0.65         $0.55       $0.66   Cash dividends declared per share                                   $-         $0.16          $-  Weighted-average shares used to compute net earnings per share:     Basic                            2,638         2,705       2,809     Diluted                          2,731         2,801       2,887  (a) Stock-based compensation expense included under SFAS 123R was as follows:      Cost of sales                     $42           $45         $33      Research and development           18            19          15      Selling, general and       administrative                    94            99          76                                ------------ ------------- -----------          Total costs and           expenses                    $154          $163        $124  (b) Tax benefit from stock- based compensation                    $(44)         $(48)       $(39)
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES            CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS                             (Unaudited)                (In millions except per share amounts)                                                       Six months ended                                                   -------------------                                                   April 30, April 30,                                                     2007      2006                                                   --------- ---------  Net revenue                                         $50,616   $45,213  Costs and expenses(a):     Cost of sales                                   38,419    34,362     Research and development                         1,780     1,801     Selling, general and administrative              5,952     5,550     Amortization of purchased intangible assets        413       298     In-process research and development charges        186        52     Restructuring                                      412         1     Pension curtailments and pension settlements,      net                                              (517)        -                                                   --------- ---------          Total costs and expenses                   46,645    42,064                                                   --------- ---------  Earnings from operations                              3,971     3,149  Interest and other, net                                 198       195 Gains on investments                                     23         4                                                   --------- ---------  Earnings before taxes                                 4,192     3,348  Provision for taxes(b)                                  870       222                                                   --------- ---------  Net earnings                                         $3,322    $3,126                                                   ========= =========  Net earnings per share:     Basic                                            $1.24     $1.11     Diluted                                          $1.20     $1.08   Cash dividends declared per share                     $0.16     $0.16  Weighted-average shares used to compute net earnings per share:     Basic                                            2,672     2,815     Diluted                                          2,763     2,890  (a) Stock-based compensation expense included under SFAS 123R was as follows:      Cost of sales                                     $87       $72      Research and development                           37        33      Selling, general and administrative               193       163                                                   --------- ---------          Total costs and expenses                     $317      $268  (b) Tax benefit from stock-based compensation          $(92)     $(82)
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES     ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,               OPERATING MARGIN AND EARNINGS PER SHARE                             (Unaudited)                (In millions except per share amounts)                     Three            Three             Three                  months            months            months                   ended  Diluted   ended   Diluted   ended   Diluted                   April  Earnings January  Earnings  April   Earnings                    30,     Per      31,      Per       30,     Per                   2007    Share     2007    Share     2006    Share                  ---------------- ----------------- -----------------  GAAP net earnings $1,775    $0.65   $1,547    $0.55   $1,899    $0.66  Non-GAAP adjustments:  Amortization of   purchased   intangible   assets            212     0.08      201     0.07      151     0.05  In-process   research and   development   charges            19     0.01      167     0.06        2        -  Restructuring      453     0.16      (41)   (0.02)     (14)   (0.01)  Pension   curtailments   and pension   settlements,   net              (508)   (0.19)      (9)       -        -        -  Gains on   investments(a)      -        -        -        -       (6)       -  Adjustments for   taxes             (31)   (0.01)     (39)   (0.01)     (36)   (0.01)                  ------- -------- -------- -------- -------- --------  Non-GAAP net earnings         $1,920    $0.70   $1,826    $0.65   $1,996    $0.69                  ======= ======== ======== ======== ======== ========   GAAP earnings from operations  $2,128            $1,843            $1,657  Non-GAAP adjustments:  Amortization of   purchased   intangible   assets            212               201               151  In-process   research and   development   charges            19               167                 2  Restructuring      453               (41)              (14)  Pension   curtailments   and pension   settlements,   net              (508)               (9)                -                  -------          --------          --------  Non-GAAP earnings from operations  $2,304            $2,161            $1,796                  =======          ========          ========  GAAP operating margin                8%                7%                7% Non-GAAP adjustments           1%                2%                1%                  -------          --------          --------  Non-GAAP operating margin      9%                9%                8%                  =======          ========          ========   (a) Beginning in fiscal 2007, HP no longer excludes gains or losses on investments when calculating financial measures presented on a non- GAAP basis.
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES     ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,               OPERATING MARGIN AND EARNINGS PER SHARE                             (Unaudited)                (In millions except per share amounts)                               Six months  Diluted  Six months Diluted                                ended    Earnings    ended    Earnings                              April 30,     Per    April 30,    Per                                 2007      Share      2006     Share                              -------------------- -------------------  GAAP net earnings                $3,322     $1.20     $3,126    $1.08  Non-GAAP adjustments:     Amortization of      purchased intangible      assets                        413      0.15        298     0.10     In-process research and      development charges           186      0.07         52     0.02     Restructuring                  412      0.15          1        -     Pension curtailments and      pension settlements,      net                          (517)    (0.19)         -        -     Gains on investments(a)          -         -         (4)       -     Adjustments for taxes          (70)    (0.02)       (84)   (0.03)                              ---------- --------- ---------- --------  Non-GAAP net earnings            $3,746     $1.36     $3,389    $1.17                              ========== ========= ========== ========   GAAP earnings from operations    $3,971               $3,149  Non-GAAP adjustments:     Amortization of      purchased intangible      assets                        413                  298     In-process research and      development charges           186                   52     Restructuring                  412                    1     Pension curtailments and      pension settlements,      net                          (517)                   -                              ----------           ----------  Non-GAAP earnings from operations                      $4,465               $3,500                              ==========           ==========  GAAP operating margin                 8%                   7% Non-GAAP adjustments                  1%                   1%                              ----------           ----------  Non-GAAP operating margin             9%                   8%                              ==========           ==========   (a) Beginning in fiscal 2007, HP no longer excludes gains or losses on investments when calculating financial measures presented on a non- GAAP basis.
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                CONSOLIDATED CONDENSED BALANCE SHEETS                            (In millions)                                                  April 30,  October 31,                                                  2007        2006                                               ----------- -----------                                               (unaudited)  ASSETS  Current assets:     Cash and cash equivalents                    $12,236     $16,400     Short-term investments                            74          22     Accounts receivable                           11,577      10,873     Financing receivables                          2,532       2,440     Inventory                                      7,278       7,750     Other current assets                          10,177      10,779                                               ----------- -----------         Total current assets                       43,874      48,264                                               ----------- -----------  Property, plant and equipment                       7,339       6,863  Long-term financing receivables and other assets                                             7,751       6,649  Goodwill and purchased intangible assets           24,449      20,205                                               ----------- -----------  Total assets                                      $83,413     $81,981                                               =========== ===========   LIABILITIES AND STOCKHOLDERS' EQUITY  Current liabilities:     Notes payable and short-term borrowings       $4,360      $2,705     Accounts payable                              11,505      12,102     Employee compensation and benefits             2,559       3,148     Taxes on earnings                              1,744       1,905     Deferred revenue                               4,900       4,309     Accrued restructuring                            236         547     Other accrued liabilities                     11,609      11,134                                               ----------- -----------         Total current liabilities                  36,913      35,850                                               ----------- -----------  Long-term debt                                      3,977       2,490 Other liabilities                                   6,037       5,497  Stockholders' equity                               36,486      38,144                                               ----------- -----------  Total liabilities and stockholders' equity        $83,413     $81,981                                               =========== ===========
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES           CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS                             (Unaudited)                            (In millions)                                     Three months ended Six months ended                                     April 30, 2007    April 30, 2007                                   ------------------ ----------------  Cash flows from operating activities:   Net earnings                               $1,775           $3,322   Adjustments to reconcile net    earnings to net cash provided    by operating activities:     Depreciation and amortization               678            1,321     Stock-based compensation      expense                                    154              317     Provision for bad debt and      inventory                                  110              187     Gains on investments                        (13)             (23)     In-process research and      development charges                         19              186     Restructuring                               453              412     Pension curtailments and      pension settlements, net                  (508)            (517)     Deferred taxes on earnings                  149              240     Excess tax benefit from      stock-based compensation                   (75)            (175)     Other, net                                  (41)             (44)      Changes in assets and      liabilities:       Accounts and financing        receivables                           (1,203)            (655)       Inventory                                 995              297       Accounts payable                          145             (614)       Taxes on earnings                          20              151       Restructuring                            (161)            (442)       Other assets and        liabilities                            1,664              176                                   ------------------ ----------------         Net cash provided by          operating activities                 4,161            4,139                                   ------------------ ----------------  Cash flows from investing activities:     Investment in property, plant      and equipment                             (758)          (1,476)     Proceeds from sale of      property, plant and      equipment                                  161              300     Purchases of available-for-      sale securities and other      investments                                 (3)             (16)     Maturities and sales of      available-for-sale      securities and other      investments                                253              345     Payments made in connection      with business acquisitions,      net                                       (372)          (4,836)                                   ------------------ ----------------        Net cash used in investing         activities                             (719)          (5,683)                                   ------------------ ----------------  Cash flows from financing activities:     Issuance of commercial paper      and notes payable, net                     783            2,046     Issuance of debt                          2,002            2,071     Payment of debt                            (305)          (1,361)     Issuance of common stock      under employee stock plans                 419            1,216     Repurchase of common stock               (4,024)          (6,336)     Excess tax benefit from      stock-based compensation                    75              175     Dividends                                  (213)            (431)                                   ------------------ ----------------        Net cash used in financing         activities                           (1,263)          (2,620)                                   ------------------ ----------------  Increase (decrease) in cash and cash equivalents                              2,179           (4,164) Cash and cash equivalents at beginning of period                          10,057           16,400                                   ------------------ ---------------- Cash and cash equivalents at end of period                                   $12,236          $12,236                                   ================== ================
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                         SEGMENT INFORMATION                             (Unaudited)                            (In millions)                                              Three months ended                                       -------------------------------                                       April 30, January 31, April 30,                                         2007       2007      2006(a)                                       --------- ----------- ---------  Net revenue:     Enterprise Storage and Servers       $4,619      $4,453    $4,265    HP Services                           4,145       3,948     3,892    HP Software                             523         550       330                                       --------- ----------- ---------  Technology Solutions Group              9,287       8,951     8,487                                       --------- ----------- ---------  Personal Systems Group                  8,663       8,719     6,977  Imaging and Printing Group              7,161       6,999     6,724  HP Financial Services                     550         547       518  Corporate Investments                     175         157       122                                       --------- ----------- ---------    Total Segments                       25,836      25,373    22,828  Eliminations of intersegment net   revenue and other                       (302)       (291)     (274)                                       --------- ----------- ---------     Total HP Consolidated               $25,534     $25,082   $22,554                                       ========= =========== =========  Earnings from operations:     Enterprise Storage and Servers         $407        $416      $322    HP Services                             459         414       345    HP Software                              42          47         3                                       --------- ----------- ---------  Technology Solutions Group                908         877       670                                       --------- ----------- ---------  Personal Systems Group                    417         414       248  Imaging and Printing Group              1,167       1,073     1,041  HP Financial Services                      36          32        39  Corporate Investments                     (18)        (29)      (49)                                       --------- ----------- ---------     Total Segments                       2,510       2,367     1,949      Corporate and unallocated costs      and eliminations                      (75)        (66)      (50)     Unallocated costs related to      stock-based compensation expense     (131)       (140)     (103)     Amortization of purchased      intangible assets                    (212)       (201)     (151)     In-process research and      development charges                   (19)       (167)       (2)     Restructuring                         (453)         41        14     Pension curtailments and pension      settlements, net                      508           9         -     Interest and other, net                 87         111       157     Gains on investments                    13          10         6                                       --------- ----------- ---------     Total HP Consolidated Earnings     Before Taxes                        $2,228      $1,964    $1,820                                       ========= =========== =========   (a) Certain fiscal 2007 organizational realignments have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2006, the realignments primarily resulted in revenue movement within business units within the ESS and HPS segments. There was no impact to total segment revenue.
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                         SEGMENT INFORMATION                             (Unaudited)                            (In millions)                                                Six months ended                                                  April 30,                                        ------------------------------                                            2007           2006(a)                                        --------------  --------------  Net revenue:     Enterprise Storage and Servers             $9,072          $8,505    HP Services                                 8,093           7,649    HP Software                                 1,073             634                                        --------------  --------------  Technology Solutions Group                   18,238          16,788                                        --------------  --------------  Personal Systems Group                       17,382          14,426  Imaging and Printing Group                   14,160          13,269  HP Financial Services                         1,097           1,014  Corporate Investments                           332             251                                        --------------  --------------    Total Segments                             51,209          45,748  Eliminations of intersegment net   revenue and other                             (593)           (535)                                        --------------  --------------     Total HP Consolidated                     $50,616         $45,213                                        ==============  ==============  Earnings from operations:     Enterprise Storage and Servers               $823            $648    HP Services                                   873             638    HP Software                                    89              12                                        --------------  --------------  Technology Solutions Group                    1,785           1,298                                        --------------  --------------  Personal Systems Group                          831             541  Imaging and Printing Group                    2,240           2,014  HP Financial Services                            68              77  Corporate Investments                           (47)            (82)                                        --------------  --------------     Total Segments                             4,877           3,848      Corporate and unallocated costs      and eliminations                           (141)           (122)     Unallocated costs related to      stock-based compensation expense           (271)           (226)     Amortization of purchased      intangible assets                          (413)           (298)     In-process research and      development charges                        (186)            (52)     Restructuring                               (412)             (1)     Pension curtailments and pension      settlements, net                            517               -     Interest and other, net                      198             195     Gains on investments                          23               4                                        --------------  --------------     Total HP Consolidated Earnings     Before Taxes                              $4,192          $3,348                                        ==============  ==============   (a) Certain fiscal 2007 organizational realignments have been reflected retroactively to provide improved visibility and comparability. For fiscal year 2006, the realignments primarily resulted in revenue movement within business units within the ESS and HPS segments. There was no impact to total segment revenue.
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                 SEGMENT / BUSINESS UNIT INFORMATION                             (Unaudited)                            (In millions)                                             Three months ended                                     ---------------------------------                                     April 30,  January 31, April 30,                                        2007       2007      2006(a)                                     ---------- ----------- ----------  Net revenue:      Industry Standard Servers          $2,818      $2,689     $2,413     Business Critical Systems             862         848        920     Storage                               939         916        932                                     ---------- ----------- ----------    Enterprise Storage and Servers       4,619       4,453      4,265                                     ---------- ----------- ----------     Technology Services                 2,155       2,093      2,086     Outsourcing Services(b)             1,195       1,125      1,070     Consulting and Integration            795         730        736                                     ---------- ----------- ----------    HP Services                          4,145       3,948      3,892                                     ---------- ----------- ----------     OpenView                              434         457        228     OpenCall and Other                     89          93        102                                     ---------- ----------- ----------    HP Software                            523         550        330                                     ---------- ----------- ----------  Technology Solutions Group             9,287       8,951      8,487                                     ---------- ----------- ----------     Desktops                            3,904       3,812      3,569     Notebooks                           4,084       4,144      2,815     Workstations                          402         405        338     Handhelds                             105         183        129     Other                                 168         175        126                                     ---------- ----------- ----------  Personal Systems Group                 8,663       8,719      6,977                                     ---------- ----------- ----------     Commercial Hardware                 1,786       1,689      1,739     Consumer Hardware                     996       1,227      1,015     Supplies                            4,367       4,069      3,957     Other                                  12          14         13                                     ---------- ----------- ----------  Imaging and Printing Group             7,161       6,999      6,724                                     ---------- ----------- ----------  HP Financial Services                    550         547        518  Corporate Investments                    175         157        122                                     ---------- ----------- ----------     Total Segments                     25,836      25,373     22,828                                     ---------- ----------- ----------   Eliminations of intersegment net   revenue and other                      (302)       (291)      (274)                                     ---------- ----------- ----------     Total HP Consolidated              $25,534     $25,082    $22,554                                     ========== =========== ==========   (a) Certain fiscal 2007 organizational realignments have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2006, the realignments primarily resulted in revenue movement within business units within the ESS and HPS segments. There was no impact to total segment revenue.  (b) Reflects name change from Managed Services to Outsourcing Services effective in fiscal 2007.
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                 SEGMENT / BUSINESS UNIT INFORMATION                             (Unaudited)                            (In millions)                                                  Six months ended                                                    April 30,                                            --------------------------                                                2007        2006(a)                                            ------------- ------------  Net revenue:      Industry Standard Servers                    $5,507       $4,861     Business Critical Systems                     1,710        1,826     Storage                                       1,855        1,818                                            ------------- ------------    Enterprise Storage and Servers                 9,072        8,505                                            ------------- ------------     Technology Services                           4,248        4,167     Outsourcing Services(b)                       2,320        2,081     Consulting and Integration                    1,525        1,401                                            ------------- ------------    HP Services                                    8,093        7,649                                            ------------- ------------     OpenView                                        891          433     OpenCall and Other                              182          201                                            ------------- ------------    HP Software                                    1,073          634                                            ------------- ------------  Technology Solutions Group                      18,238       16,788                                            ------------- ------------     Desktops                                      7,716        7,423     Notebooks                                     8,228        5,769     Workstations                                    807          667     Handhelds                                       288          345     Other                                           343          222                                            ------------- ------------  Personal Systems Group                          17,382       14,426                                            ------------- ------------     Commercial Hardware                           3,475        3,394     Consumer Hardware                             2,223        2,238     Supplies                                      8,436        7,609     Other                                            26           28                                            ------------- ------------  Imaging and Printing Group                      14,160       13,269                                            ------------- ------------  HP Financial Services                            1,097        1,014  Corporate Investments                              332          251                                            ------------- ------------     Total Segments                               51,209       45,748                                            ------------- ------------   Eliminations of intersegment net revenue   and other                                        (593)        (535)                                            ------------- ------------     Total HP Consolidated                        $50,616      $45,213                                            ============= ============   (a) Certain fiscal 2007 organizational realignments have been reflected retroactively to provide improved visibility and comparability. For fiscal year 2006, the realignments primarily resulted in revenue movement within business units within the ESS and HPS segments. There was no impact to total segment revenue.  (b) Reflects name change from Managed Services to Outsourcing Services effective in fiscal 2007.
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                CALCULATION OF NET EARNINGS PER SHARE                             (Unaudited)                (In millions except per share amounts)                                               Three months ended                                      --------------------------------                                      April 30,  January 31, April 30,                                         2007       2007       2006                                      ---------- ----------- ---------  Numerator:  Net earnings                           $1,775      $1,547    $1,899  Adjustment for interest expense on   zero-coupon subordinated   convertible notes, net of taxes            2           2         2                                      ---------- ----------- ---------   Net earnings, adjusted                 $1,777      $1,549    $1,901                                      ========== =========== =========  Denominator:  Weighted-average shares used to   compute basic EPS                      2,638       2,705     2,809  Effect of dilutive securities:    Dilution from employee stock     plans                                   85          88        71    Zero-coupon subordinated     convertible notes                        8           8         7                                      ---------- ----------- ---------  Dilutive potential common shares           93          96        78                                      ---------- ----------- ---------   Weighted-average shares used to   compute diluted EPS                    2,731       2,801     2,887                                      ========== =========== =========  Net earnings per share:  Basic(a)                                $0.67       $0.57     $0.68  Diluted(b)                              $0.65       $0.55     $0.66    (a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.  (b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and conversion of debt, except when such issuances would be antidilutive.
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                CALCULATION OF NET EARNINGS PER SHARE                             (Unaudited)                (In millions except per share amounts)                                                    Six months ended                                                     April 30,                                              ------------------------                                                 2007        2006                                              ----------- ------------   Numerator:  Net earnings                                    $3,322       $3,126  Adjustment for interest expense on zero   coupon subordinated convertible notes, net   of taxes                                            4            4                                              ----------- ------------   Net earnings, adjusted                          $3,326       $3,130                                              =========== ============  Denominator:  Weighted-average shares used to compute   basic EPS                                       2,672        2,815  Effect of dilutive securities:    Dilution from employee stock plans                83           67    Zero-coupon subordinated convertible     notes                                             8            8                                              ----------- ------------  Dilutive potential common shares                    91           75                                              ----------- ------------   Weighted-average shares used to compute   diluted EPS                                     2,763        2,890                                              =========== ============  Net earnings per share:  Basic(a)                                         $1.24        $1.11  Diluted(b)                                       $1.20        $1.08      (a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.  (b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and conversion of debt, except when such issuances would be antidilutive.
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES            CALCULATION OF NON-GAAP NET EARNINGS PER SHARE                             (Unaudited)                (In millions except per share amounts)                                                Three months ended                                     ---------------------------------                                     April 30,   January 31, April 30,                                        2007        2007       2006                                     ----------  ----------- ---------  Numerator:  Non-GAAP net earnings                 $1,920       $1,826    $1,996  Adjustment for interest expense on   zero-coupon subordinated   convertible notes, net of taxes           2            2         2                                     ----------  ----------- ---------   Non-GAAP net earnings, adjusted       $1,922       $1,828    $1,998                                     ==========  =========== =========  Denominator:  Weighted-average shares used to   compute basic EPS                     2,638        2,705     2,809  Effect of dilutive securities:    Dilution from employee stock     plans                                  85           88        71    Zero-coupon subordinated     convertible notes                       8            8         7                                     ----------  ----------- ---------  Dilutive potential common shares          93           96        78                                     ----------  ----------- ---------   Weighted-average shares used to   compute diluted EPS                   2,731        2,801     2,887                                     ==========  =========== =========  Non-GAAP net earnings per share:  Basic(a)                               $0.73        $0.68     $0.71  Diluted(b)                             $0.70        $0.65     $0.69    (a) HP's basic non-GAAP earnings per share was calculated based on non-GAAP net earnings and the weighted-average number of shares outstanding during the reporting period.  (b) HP's diluted non-GAAP earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and conversion of debt, except when such issuances would be antidilutive.
            HEWLETT-PACKARD COMPANY AND SUBSIDIARIES            CALCULATION OF NON-GAAP NET EARNINGS PER SHARE                             (Unaudited)                (In millions except per share amounts)                                                        Six months ended                                                         April 30,                                                      ----------------                                                       2007     2006                                                      -------- -------  Numerator:  Non-GAAP net earnings                                $3,746  $3,389  Adjustment for interest expense on zero coupon   subordinated convertible notes, net of taxes             4       4                                                      -------- -------   Non-GAAP net earnings, adjusted                      $3,750  $3,393                                                      ======== =======  Denominator:  Weighted-average shares used to compute basic EPS     2,672   2,815  Effect of dilutive securities:    Dilution from employee stock plans                     83      67    Zero-coupon subordinated convertible notes              8       8                                                      -------- -------  Dilutive potential common shares                         91      75                                                      -------- -------   Weighted-average shares used to compute diluted EPS   2,763   2,890                                                      ======== =======  Non-GAAP net earnings per share:  Basic(a)                                              $1.40   $1.20  Diluted(b)                                            $1.36   $1.17     (a) HP's basic non-GAAP earnings per share was calculated based on non-GAAP net earnings and the weighted-average number of shares outstanding during the reporting period.  (b) HP's diluted non-GAAP EPS included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and conversion of debt, except when such issuances would be antidilutive.

Use of Non-GAAP Financial Measures

To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted earnings per share is diluted net earnings per share. The GAAP measure most directly comparable to gross cash is cash and cash equivalents. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above.

Use and Economic Substance of Non-GAAP Financial Measures Used by HP

Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the amortization of purchased intangible assets, pension curtailment gains and in-process research and development charges recorded during the relevant period. Non-GAAP net earnings and non-GAAP diluted earnings per share consist of net earnings or diluted net earnings per share excluding those same charges as well as any gains or losses on investments recorded for periods ending on or before October 31, 2006. In addition, non-GAAP net earnings and non-GAAP diluted earnings per share are adjusted by the amount of additional taxes or tax benefit associated with each non-GAAP item. HP's management uses these non-GAAP financial measures for purposes of evaluating HP's historical and prospective financial performance, as well as HP's performance relative to its competitors. HP's management also uses these non-GAAP measures to further its own understanding of HP's segment operating performance. HP believes that excluding those items mentioned above from these non-GAAP financial measures allows HP management to better understand HP's consolidated financial performance in relationship to the operating results of HP's segments, as management does not believe that the excluded items are reflective of ongoing operating results. More specifically, HP's management excludes each of those items mentioned above for the following reasons:

 --  Restructuring charges consist of costs primarily related to        severance and benefits for employees terminated pursuant to a        formal restructuring plan, including strategic reallocations        or workforce reductions and early retirement programs. HP        excludes these restructuring costs (and any reversals of        charges recorded in prior periods) for purposes of calculating        these non-GAAP measures because it believes that these        historical costs do not reflect expected future operating        expenses and do not contribute to a meaningful evaluation of        HP's current operating performance or comparisons to HP's past        operating performance.     --  Purchased intangible assets consist primarily of customer        contracts, customer lists, distribution agreements, technology        patents, and products, trademarks and trade names purchased in        connection with acquisitions. HP incurs charges relating to        the amortization of these intangibles, and those charges are        included in HP's GAAP presentation of earnings from        operations, operating margin, net earnings and net earnings        per share. Amortization charges for HP's purchased intangible        assets are inconsistent in amount and frequency and are        significantly impacted by the timing and magnitude of HP's        acquisitions. Consequently, HP excludes these charges for        purposes of calculating these non-GAAP measures to facilitate        a more meaningful evaluation of HP's current operating        performance and comparisons to HP's past operating        performance.     --  In the first quarter of fiscal 2007, HP recognized a net        curtailment gain for its non-U.S. pension plans. The net gain        primarily reflects a plan design change in Mexico where HP        ceased pension accruals for current employees who did not meet        defined criteria based on age and years of service (calculated        as of December 31, 2006). In the second quarter of fiscal        2007, HP recorded a pension curtailment gain primarily        resulting from the decision to cease pension accruals under        its U.S. defined benefit pension plan for all employees who        were still accruing benefits under that plan. The curtailment        gain was partially offset primarily by a settlement expense        associated with the distribution and subsequent transfer of        accrued pension benefits from HP's U.S. Excess Benefit Plan to        HP's U.S. Executive Deferred Compensation Plan for the        terminated vested plan participants. Because pension        curtailment gains and pension settlement losses are        inconsistent in amount and frequency, HP believes that        eliminating these gains and losses for purposes of calculating        these non-GAAP measures facilitates a more meaningful        evaluation of HP's current operating performance and        comparisons to HP's past operating performance.     --  In-process research and development charges relate to amounts        assigned to tangible and intangible assets to be used in        research and development projects that have no alternative        future use and therefore are charged to expense at the        acquisition date. Charges for in-process research and        development in connection with HP's acquisitions are reflected        in HP's GAAP presentation of earnings from operations,        operating margin, net earnings and net earnings per share.        In-process research and development expenses are not        indicative of HP's ongoing operating costs and are generally        unpredictable. Accordingly, HP believes that eliminating these        expenses for purposes of calculating these non-GAAP measures        contributes to a meaningful evaluation of HP's current        operating performance and comparisons to HP's past operating        performance.     --  HP's investments consist principally of time deposits, other        debt securities and equity securities of publicly traded and        privately held companies. HP sells investments or adjusts the        value of investments from time to time based on market        conditions and, in the case of investments in equity        securities, the strategic value of such investments. HP's        activities in this regard are included in its GAAP        presentation of net income and net earnings per share. Because        the amount and timing of these gains or losses and adjustments        are unpredictable, HP eliminated these gains or losses and        adjustments for purposes of calculating non-GAAP net earnings        and non-GAAP diluted earnings per share for periods ending on        or before October 31, 2006. Beginning in fiscal 2007, HP no        longer excludes gains or losses on investments when        calculating non-GAAP net earnings and non-GAAP diluted        earnings per share, as the amounts of those gains and losses        have been immaterial in recent periods.

Gross cash is a non-GAAP measure that is defined as cash and cash equivalents plus short-term investments and certain long-term investments that may be liquidated within 90 days pursuant to the terms of existing put options or similar rights. HP's management uses gross cash for the purpose of determining the amount of cash available for investment in HP's businesses, funding strategic acquisitions, repurchasing stock and other purposes. HP's management also uses gross cash for the purposes of evaluating HP's historical and prospective liquidity, as well as to further its own understanding of HP's segment operating results. Because gross cash includes liquid assets that are not included in GAAP cash and cash equivalents, HP believes that gross cash provides a more accurate and complete assessment of HP's liquidity and segment operating results.

Material Limitations Associated with Use of Non-GAAP Financial Measures

These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HP's results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are:

 --  Items such as amortization of purchased intangible assets,        though not directly affecting HP's cash position, represent        the loss in value of intangible assets over time. The expense        associated with this loss in value is not included in non-GAAP        operating profit, non-GAAP operating margin, non-GAAP net        earnings and non-GAAP diluted earnings per share and therefore        does not reflect the full economic effect of the loss in value        of those intangible assets.     --  Items such as restructuring charges that are excluded from        non-GAAP operating profit, non-GAAP operating margin, non-GAAP        net earnings and non-GAAP diluted earnings per share can have        a material impact on cash flows and earnings per share.     --  HP may not be able to liquidate immediately the long-term        investments included in gross cash, which may limit the        usefulness of gross cash as a liquidity measure.     --  Other companies may calculate non-GAAP operating profit,        non-GAAP operating margin, non-GAAP net earnings, non-GAAP        diluted earnings per share and gross cash differently than HP        does, limiting the usefulness of those measures for        comparative purposes.

Compensation for Limitations Associated with Use of Non-GAAP Financial Measures

HP compensates for the limitations on our use of non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this press release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations.

Usefulness of Non-GAAP Financial Measures to Investors

HP believes that providing non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by HP's management in its financial and operational decision-making and allows investors to see HP's results "through the eyes" of management. HP further believes that providing this information better enables HP's investors to understand HP's operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of HP's operating performance with the performance of other companies in HP's industry that supplement their GAAP results with non-GAAP financial measures that are calculated in a similar manner.

CONTACT: HP
Robert Sherbin, +1-650-857-2381
robert.sherbin@hp.com
Ryan J. Donovan, +1-650-857-8410
ryan.j.donovan@hp.com
or
HP Media Hotline, +1-866-266-7272
pr@hp.com
www.hp.com/go/newsroom

SOURCE: HP

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