HP's PRINTING BUSINESS STRUGGLES
HP's PRINTING BUSINESS STRUGGLES
2008-09-18 at 3:12:38 pm #20740
Hewlett’s Printing Business Struggles
SAN FRANCISCO — Hewlett-Packard, the world’s largest technology company, continues to roll along financially — except in one traditional core business — its printing business.The company reported third-quarter sales and profit on Tuesday that exceeded Wall Street expectations. But the company’s struggles in one of its traditional strengths — imaging and printing — seem to be accelerating.Revenue from its printing division grew 3 percent, to $7 billion, in the third quarter, which ended July 31, over the period a year ago. Its commercial printer sales were down 5 percent, and consumer hardware fell 14 percent. A quarter of the company’s total revenue comes from its printing division. Helping to offset the declines was an 11 percent increase in the sales of printer supplies — like ink and cartridges.On the hardware side, “you’re starting to see some slower growth in particularly the consumer business, as well as the commercial business,” an industry analyst with American Technology Research, Shaw Wu, said.
Mr. Wu said such slowdowns were the result of cyclical challenges rather than systemic ones. Hewlett-Packard, having saturated the market with new printers, will face periods when it must wait until businesses and consumers are ready to buy again.He said he expected Hewlett-Packard to ramp up soon, though he noted that the company declined to delve deeply into the issue during its quarterly conference call. And Mr. Wu said that although he expected printer sales to rebound, “it’s easier said than done.”
The decline in printing was among a handful of weak spots, analysts said, in yet another quarter in which H.P. exceeded Wall Street projections.In the third quarter, the company reported revenue of $28 billion, up 10 percent from the same period a year earlier. Wall Street was expecting $27.4 billion.H.P. reported net income of $2 billion, up 14 percent from a year ago. Excluding one-time charges, the company earned 86 cents a share, bettering by 2 cents the projections of Wall Street analysts.“This is very good, given the prevailing economic environment,” an analyst with Sanford C. Bernstein & Company, A. M. Sacconaghi Jr., said.
As has been the case in recent quarters, H.P. — which does about 68 percent of its sales overseas — had much stronger growth internationally than it did in the United States. In its third quarter, H.P.’s sales increased 16 percent, to $11.2 billion, in Europe, the Middle East and Africa, and 14 percent, to $5.2 billion, in Asia.
But, in one of the other relatively weak spots in its quarter, Hewlett-Packard’s sales rose only 4 percent, to $11.6 billion, in the American region.The brightest spot for the company was its personal computer division. Notebook computer revenue rose 26 percent from the period a year ago, while desktops grew 6 percent. That lower desktop growth is consistent with a broader slowdown in the sales of desktop computers, which are giving way to notebooks. Over all, PC revenue grew 15 percent, to $10.3 billion.
Hewlett-Packard is the world’s largest vendor of PCs. But in the United States, H.P.’s rival, Dell, has been making an aggressive push into the retail market, and its market share is growing. Mr. Hurd sidestepped a question about whether H.P. was feeling pressure from Dell’s entrance into the retail market.“There’s a ton of folks out there trying to compete on multiple dimensions,” Mr. Hurd said, referring to other PC makers. “We’re doing the best to compete.”The other standout was the company’s small — for H.P. — but fast-growing software division. Revenue was up 29 percent, to $781 million. Revenue for its Technology Solutions Group, which sells products and services to large companies and includes software, grew 10.6 percent, to $10.3 billion.
The challenges could grow steeper. Later this month, H.P. plans to close its $14 billion acquisition of Electronic Data Services, a provider of technology services.The integration of the companies will be a potential bump in what has been a consistent series of strong quarterly financial performances, technology industry analysts said.“There are certainly risks and people are going to pay close attention,” an analyst with Edward Jones, Bill Kreher, said. He added that he believed the combination of the companies would be a success.
For his part, Mr. Hurd said H.P. and E.D.S. collectively had 500 people working on the integration.“The plan is going well, and we are confident in the benefits this business combination will bring,” he said. Mr. Hurd said that he planned to address the opportunities brought by the deal at a meeting with investors scheduled for Sept. 15.Excluding the financial impact of the E.D.S. acquisition, H.P. projected earnings for the fourth quarter — its current one — would be $1.01 to $1.03 a share. That is up from previous guidance of $1 a share, according to Mr. Sacconaghi.