By Aaron Ricadela - Feb 23, 2012 9:10 AM GMT+0700
Hewlett-Packard Co. forecast fiscal second-quarter profit (HPQ) that missed analysts’ estimates as consumers curtail personal-computer buying, doing more computing on smartphones and tablets made by rivals.
Profit excluding some items will be 88 cents to 91 cents a share for the period that ends in April, Hewlett-Packard said today in a statement. That fell short of 95 cents, the average analyst estimate, according to data compiled by Bloomberg.
Sales in the PC group dropped 15 percent to $8.87 billion in the period that ended in January, as consumers held off on buying new machines in the first full quarter under Chief Executive Officer Meg Whitman. Revenue from servers, printers and storage gear also declined, suggesting that Whitman’s attempts to reverse a sales slump aren’t yet taking hold.
“Headwinds will likely continue through the second quarter,” Abhey Lamba, an analyst at Mizuho Securities USA Inc., said in a research note today. “The company is again being conservative for the second quarter and remains cautious.” The New York-based analyst began coverage of Hewlett-Packard on Feb. 8 with a “neutral” rating.
On a conference call today, Whitman said the company’s PCs, printers and information-technology services haven’t been compelling enough to attract customers’ spending.
“For years, we’ve been basically running our business in silos,” she said. “We underinvested in innovation.”
Waiting to Buy
First-quarter sales of home computers fell 25 percent and business-PC revenue was down 7 percent, the Palo Alto, California-based company said. Consumers may wait to buy new PCs until Microsoft Corp. (MSFT) releases its Windows 8 software later this year. Rival Dell Inc. yesterday forecast lower sales for the current period amid tepid demand from consumers and governments.
Hewlett-Packard’s printer group also has too many unsold products sitting in dealers’ inventory, Lamba said in an interview. Sales in the printer group declined 7 percent to $6.26 billion.
Information-technology services revenue rose 1.1 percent to $8.63 billion, though profit margin narrowed. Shifting to more profitable types of services will take time, Lamba said.
“It’s not going to be a one-year turnaround,” he said.
Sales of servers, storage and networking equipment declined 10 percent to $5.02 billion, Hewlett-Packard said. Software revenue climbed 30 percent to $946 million.
Hewlett-Packard shares slipped to $28.58 in extended trading after the report. They had fallen 1.4 percent to $28.94 at the close in New York. The shares have climbed 12 percent this year after losing 39 percent of their value in 2011.
Paring Product Lines
In the first quarter, which ended Jan. 31, profit excluding some items declined to 92 cents a share, compared with analysts’ average estimate of 87 cents.
Net income fell 44 percent to $1.47 billion, or 73 cents a share, from $2.61 billion, or $1.17 a share, a year earlier, Hewlett-Packard said. Sales fell 7 percent to $30 billion. Analysts had projected $30.8 billion.
Whitman said she is attacking inefficient product-design and sales processes and investing in research and development to try to make the company more competitive. In an interview, she said she’s paring the number of PCs and printers Hewlett-Packard sells and making it easier for salespeople to adjust price quotes to book an order. She’s also been holding roundtables in Houston and other cities with chief information officers of big customers to suss out their needs.
“We’ve got everyone we can get calling on customers,” Whitman said. “I’ve got board members calling on customers.”
Whitman’s Rebuilding Effort
When the company reported fourth-quarter results Nov. 21, it forecast profit for fiscal 2012, which began Nov. 1, of at least $4 a share; analysts had previously expected $4.58. The company said today there has been no change to its annual forecast.
Since she took the helm, Whitman has been seeking to halt the missed sales forecasts and strategy shifts that marked the tenure of her predecessor, Leo Apotheker, who resigned Sept. 22. She has also said she’ll eschew big acquisitions. Apotheker left after a year and a half of management turmoil, falling computer demand and reduced growth forecasts. Whitman told analysts a complete turnaround of results could take two years or more.
Investing in Research
Whitman has also said she will attempt to rebuild Hewlett- Packard’s balance sheet and invest in research and development. R&D in the first quarter was 2.6 percent of sales, compared with 2.5 percent a year ago.
Whitman reversed a proposal, floated under Apotheker, to jettison Hewlett-Packard’s $39.6 billion PC business. She’s also opted to turn the WebOS operating system into an open-source project, letting outside programmers tinker with the code and use it in their own electronics devices.
U.S. PC shipments declined last year for the first time in a decade, and the industry is wrestling with a shortage of hard drives after flooding crippled factories in Thailand last year. Meanwhile, Apple Inc.’s iPad is cutting into PC sales, and Lenovo Group Inc. is gaining market share.
Hewlett-Packard, Dell and other PC makers are counting on a new crop of thin-and-light laptops called ultrabooks to spur sales. In addition, Hewlett-Packard is readying a lineup of PCs that would run Windows 8 and go on sale in time for the holidays.
Whitman likened her push to streamline the company’s operations to the efficiencies implemented by former CEO Mark Hurd in his tenure from 2005 to 2010. Hurd departed after a company investigation found he had violated its business conduct standards.
“Mark Hurd did a lot of good for this company,” she said in the interview. “Had he stayed, he might have gone after some of the things I’m going after,” she said. “I’m standing on his shoulders in some ways.”
To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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