HP's first quarter results offer glimmer of hope

Friday 22 February 2013 16.49
HP's revenue for its first fiscal quarter down 6% to $28.4 billion
HP's revenue for its first fiscal quarter down 6% to $28.4 billion

Hewlett-Packard's latest quarterly results have provided a glimmer of hope after months of gloomy news.

The company's first-quarter numbers, announced last night, topped what the slumping personal computer maker's own management and stock market analysts had forecast.

Like other PC makers, HP has been struggling to adapt to a shift toward smartphones and tablets, which are siphoning sales away from desktop and laptop machines made by HP.

Adding to the problems were some acquisitions gone awry.

Over the past two quarters, HP announced losses totaling $15.3 billion as the company accounted for those mishaps, to the shock of Wall Street. The jolt caused HP's stock to plunge to its lowest price in a decade just three months ago.

The shares have rebounded since then, though they still remain about 20% below where they stood in September 2011, when the company fired Leo Apotheker as its chief executive and hired Meg Whitman, who became a high-tech star while running eBay's online marketplace.

Those problems are still plaguing HP, but the signs of progress in the latest quarter indicated that the company's turnaround efforts are running ahead of schedule. Whitman has consistently said it may be several years before HP is on solid ground again.

However she said that the company is in the best condition since she was hired as CEO.

"The patient showed some improvement," Whitman said. She stopped short of predicting HP will be fully cured more quickly than she anticipated.

In a show of confidence, HP provided an earnings forecast for the February-April quarter that was higher than analyst projections.

The company's stock price gained 4.7% to $17.90 in extended trading. At its recent low, the stock had fallen to $11.35.

HP said it earned $1.2 billion, or 63 cents per share, in the three months ending January 31. That was a 16% decrease from nearly $1.5 billion, or 73 cents per share, at the same time a year earlier.

If not for certain accounting items, HP said it would have earned 82 cents per share. That was well above the average estimate of 71 cents per share among analysts surveyed by FactSet.

Revenue for the quarter fell 6% to $28.4 billion, about $470m above analyst projections. It was nearly $30 billion a year earlier. This marked the sixth consecutive quarter that HP's revenue has dropped from the previous year.

Excluding one-time items, HP expects to earn 80 cents to 82 cents per share in the current quarter. Analysts had envisioned earnings of 77 cents per share.

HP is not predicting when its revenue downturn might end. In a conference call with analysts, Whitman said HP still faces a "long road ahead" before its revenue is growing again.

To help offset the revenue decline, HP is in the process of eliminating 29,000 jobs, or about 8% of the work force when it was announced, in a streamlining scheduled to be completed by October 2014.

Ms Whitman said about 15,300 of the jobs targeted in the cost-cutting programme have been let go so far. About 3,500 people left in the most recent quarter.

The company's biggest headaches remain rooted in HP's division that includes person computers, where revenue fell 8% from the previous year. Printer sales also continued to crumble, although not quite as severely, with a 5% decrease.

Ms Whitman is trying to reverse the trend by expanding into tablet computers and selling an array of machines running on Windows 8, a radical redesign of Microsoft's widely used operating system.

She also believes HP could benefit from rival Dell's agreement to sell itself to its CEO, Michael Dell, and a group of investors for $24.4 billion.

If it is approved, the deal could saddle Dell with an additional $15 billion in debt - a burden that Whitman believes will raise question about the company's ability to innovate and tend to the needs of its corporate customers.

"It is an opportunity for us because I know firsthand what instability is like," Ms Whitman said. "I think we are really well positioned for this next big shift in technology. We are excited about it and feel good about where we are," she added.

Dell's decision to end its 25-year history of a publicly traded company has spurred speculation that HP might take a radical step, too, to boost its stock price.

The most popular theory is that HP will sell or spin off its PC and printer operations to concentrate on more profitable technology markets in business software and various services.

"We have no plans to break up HP," Ms Whitman stated. "We are convinced that these divisions are better together than they are alone."