HP topped Wall Street's revenue and earnings expectations in the first quarter of its 2007 fiscal year.

While happy with what its chief executive called a "solid quarter," HP said it would seek to further control costs by putting an end to its defined benefit pension plan for long-time HP employees and is offering an early retirement package.

HP posted net income of $1.5 billion (£767 million), or $0.55 a share, in the quarter ended 31 January 2007, compared to $1.2bn (£614m), or $0.42 a share in the same quarter a year ago.

Excluding $279m in adjustments on an after-tax basis, net income for HP was $1.8 billion, or $0.65 a share, exceeding the consensus forecast for $0.62 per share from analysts polled by Thomson Financial.

HP described the expenses as related primarily to the amortisation of purchased intangibles and in process research and development charges related to acquisitions. It also cited stock-based compensation expense in both current and prior years.

Revenue came in at $25.1 billion, up 11 percent from last year's first quarter and above the $24.27 billion analyst forecast.

Growth came from HP's personal systems group, which is desktop and laptop computers for consumers, with a 17 percent year-over-year revenue growth, and from imaging and printing, with 7 percent revenue growth.

HP also topped rival Dell as the leading seller of personal computers in 2006, according to IDC.
While chairman and chief executive Mark Hurd said the quarter was strong overall, he was disappointed with the company's enterprise storage and server products unit.

Revenue in that division grew 5% to $4.5bn and greater efficiency meant the company made more profit from the business. However, storage revenue alone grew only 3%, Hurd said. Although it's midrange EVA line of storage products sold well, sales of its tape storage products and high-end storage devices were weak.

"We have got to drive top-line growth," he said. While HP has been hiring new sales people, it also needs to develop more sales prospects. "We just don't cover enough accounts," Hurd said.

Meanwhile, an austerity program at the company continues.

HP took further steps to reduce overhead by announcing the end of the company's pension plan as of 1 January 2008, relying solely on a defined contribution plan as the company-sponsored employee retirement plan. In a defined contribution plan, an employer contributes a certain amount to a fund but doesn't guarantee a specific retirement benefit.

HP anticipates a "pension curtailment benefit" of $500m from no longer funding pensions, but the savings will be largely offset by an early retirement incentive it is offering to employees, said Cathie Lesjak, HP's chief financial officer.

Lesjak said HP anticipates about 3,000 employees will take the early retirement offer, which is good until 31 May and that most of the vacancies will be refilled.