What do HP's earnings say about the state of tech?

Hewlett Packard (HPQ) just reported earnings that were excellent by any measure.

The company reported earnings of $2.1 billion, or 80 cents a share, on revenue of $28.5 billion, up 13 percent a year ago. Excluding charges, HP had earnings of 86 cents a share. This easily beat Wall Street estimates that were looking for earnings of 81 cents.

Analyst estimates for the entire tech sector are quite optimistic. According to Bespoke, tech earnings are expected to grow 9.3% in the first quarter of 2008, 16.3% in the second quarter and 13.2% in the third quarter.

So, does HP confirm the optimism? Or is tech still toxic, as Cramer now says?

Looking a little deeper into HP's numbers, we see the following breakdown as provided in the 8-K:

Revenue in the Americas grew 8% on a year-over-year basis to $11.2 billion. Revenue grew 15% in Europe, the Middle East and Africa to $12.3 billion. Revenue grew 22% in Asia Pacific to $4.9 billion. When adjusted for the effects of currency, revenue in the Americas grew 7%, revenue in Europe, the Middle East and Africa grew 7%, and revenue in Asia Pacific grew 16%. Revenue from outside of the United States in the first quarter was 69%, with revenue in the BRIC countries (Brazil, Russia, India and China) growing 35% over the prior-year period and accounting for 9% of total revenue.

Well, Brazil is part of the Americas. What was growth in the U.S. like? HP didn't break that out separately. Growth in the Americas was the lowest of the three geographic regions. Could it be that Brazil, part of the BRIC group, actually pulled up the revenue numbers for the Americas?

This sounds familiar. When another tech bellwether, Cisco Systems (CSCO), announced earnings, they also reported that growth in the U.S. was somewhat softer than growth outside the U.S. From their 10-Q, quarterly revenue in the U.S grew by 13% y-o-y, Europe 7.6%, Emerging Markets over 52%, Asia-Pacific 18% and Japan 7.9%. In particular, though, Cisco pointed to a weak January, indicated growth would be muted over the next several months and pointed out that the environment in the U.S. is "experiencing challenges."

It appears to me that the large multi-national tech companies have recently been getting the bulk of their growth internationally. That is fine for these kind of companies; it is expected that their larger size would provide wider geographic coverage and that would help smooth out the peaks and valleys of earnings in the United States.

What about the majority of tech companies? Most are not large-cap, multi-national behemoths. Their revenues are more tightly tied to the ups and downs of the U.S. economy. If the large-caps are seeing slow-downs in the U.S. and are offsetting it with international growth, the small-caps and mid-caps that are unable to compensate by exporting are going to be in trouble.

Bottom line, HP deserves kudos for their results and their positive forward guidance but it doesn't mean the tech sector as a whole is on easy street.

Disclosure: author owns neither HPQ nor CSCO